U.S. Employment Report Suggests Jobs Market Ready to Turn Higher

The February jobs report showed 36,000 jobs lost, but suggested that the economy is on the verge of creating jobs, and that it will break through to sustained job creation beginning in March. Private payrolls fell only 18,000 in February, and excluding storm effects would surely have increased.

More than 1-million people reported that they were employed but not at work because of bad weather, 740,000 more than the usual figure for February. But that did not seem to translate into a big hit to payrolls—bear in mind that workers are only removed from the payroll employment count if they received no pay at all for the survey period, which was the pay period including February 12. Overall, the storms may only have cut 50,000 or so from payrolls, rather than the feared 100,000–150,000. But all such estimates remain educated guesswork. The snowstorm effect did show up clearly in reduced hours worked (especially in construction), an effect that will be reversed in March.

One cautionary note: hiring remains heavily concentrated in private temporary workers, where 48,000 jobs were added this month. Permanent hiring is lagging behind.

Looking at the sectoral details, the news from manufacturing remained positive, even though the sector added only 1,000 jobs in February, compared with 20,000 in January. The January increase had been narrowly driven by a 27,000 jump in motor vehicles and parts, which was partly reversed in February (with a loss of 10,000). Excluding motor vehicles and parts, manufacturing added 11,000 jobs in February, after losing 7,000 jobs in January. And since there was probably some damage to manufacturing payrolls in February from the bad weather, the underlying improvement is even better. In addition, some of the strong temporary hiring (classified in services) probably reflects help for manufacturers.

Weather effects were clearer in the manufacturing workweek, which fell to 39.5 hours, from 39.9 in January, and in total manufacturing hours worked, which fell 1.0%.

Construction payrolls fell by 64,000, which was actually smaller than the 77,000 decline in January. Since construction is very weather-sensitive, that result is consistent with the notion that the weather hit to payrolls in February was not severe. The losses followed recent patterns and were heavily concentrated in the nonresidential sector (down 45,000), while the residential sector lost 11,000 jobs and heavy/civil engineering lost 9,000. As in manufacturing, a weather effect was clear in the workweek, which fell from 37.2 hours to 36.7 hours. Total construction hours worked fell 2.4%.

In the private services sector, 42,000 jobs were added, although there was a 6,000 loss of permanent jobs, since 48,000 jobs were added in temporary help. Retail jobs were flat, after an addition of 42,000 in January—that is probably partly a weather effect, but a correction was due in any case. Healthcare added 12,000 jobs. The information sector had a weak month, losing 18,000 jobs spread across publishing, motion pictures, and telecoms.

The government lost 18,000 jobs in February, as state and local cuts offset federal hiring. State and local governments trimmed 25,000 jobs, overwhelmingly in local education, as budget cuts took their toll. The federal government added 7,000 jobs, which were more than accounted for by 15,000 temporary Census jobs. So far, the lift in Census jobs has been less sharp than in the runup to the 2000 Census, even though Census hiring is expected to be bigger this time. Census jobs should have a much bigger impact in March (probably adding around 100,000 to payroll gains).

The unemployment rate held steady at 9.7%, so that the 0.3-percentage-point drop in January was not reversed, even in part. The household survey showed an increase of 308,000 jobs, balanced by a 342,000 increase in the labor force. Note that in the household survey, a worker who cannot work because of bad weather is counted as employed, even if receiving no pay (unlike in the payroll survey).

The most comprehensive measure of underemployment (U-6)—which includes workers who would like a job but are not currently looking, plus those working part time who would rather work full time—reversed part of its January decline, rising from 16.5% to 16.8%, largely because more workers reported that they were working part-time for economic reasons. There was good news, though, in a decline in the number of long-term unemployed, reducing the mean duration of unemployment from 30.2 weeks to 29.7 weeks.

Driven by the shorter workweeks in construction and manufacturing, the overall workweek fell from 33.9 hours to 33.8, temporarily interrupting its revival. Aggregate hours worked fell 0.3%, while average hourly earnings edged up 0.1%. Aggregate weekly payrolls fell 0.2%, bad news for consumer spending power, but payrolls should bounce back in March given more normal weather.

February's jobs report is hard to interpret, given the effects of the month's bad weather. But it is consistent with the view that the underlying labor market is now creating jobs. Without storm impacts, private payrolls would probably have risen in February, and we expect to see private employment on a sustained upward path in March and beyond. In the government sector, state and local governments continue to shed jobs, but we will get a temporary boost to hiring from the Census over the next three months. Overall, during 2010, we expect the economy to add around 800,000 jobs, a modest but not jobless recovery.

As for the unemployment rate, it is encouraging that there was no setback in February. This improves the odds that last November's 10.1% level will prove to be the peak, and that unemployment can edge down a little further by the end of this year. But we continue to believe that progress in bringing down unemployment will be slow, as previously discouraged workers return to swell the labor force.