The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
Today's employment report showed moderate growth in jobs but a jump in wages. Weather appeared to hold jobs back, however. Nonfarm payroll employment rose by 97,000 in February, following a revised 146,000 boost in January and a 226,000 advance in December. The February figure was right in line with the consensus projection for a 95,000 increase in payroll jobs. January's figure was revised up 35,000 from the initial 111,000 increase and December was revised up 20,000 from the previous estimate of a 206,000 gain. For January and December combined, the net revision was up 55,000. Payrolls were held back by a 62,000 drop in construction jobs and a 14,000 decline in manufacturing. Unseasonably bad weather pushed construction activity and employment down.
Nonfarm payroll employment is up 1.5 percent year-on-year for February, compared to 1.6 percent for January.
Within the payroll survey, strength was in the service-providing industries as goods-producing fell. Overall service-providing industries rose by 168,000 in February, following a 120,000 boost in January. Gains were led by government, up 39,000; professional & business services, up 29,000; and trade & transportation, up 13,000. Goods-producing jobs fell 71,000 with construction dropping 62,000; manufacturing declining, 14,000; and natural resources & mining up 5,000.
On the inflation front, average hourly earnings posted a 0.4 percent gain in February, following a 0.2 percent increase the prior month. The consensus had forecast a 0.3 percent boost in wages for February. Average hourly earnings are up 4.1 percent on a year-on-year basis in February - the same as for the prior month. The average workweek in January slipped to 33.7 hours from 33.8 hours in January. The consensus had expected no change in the workweek from the initial January estimate of 33.8 hours.
Aggregate hours in manufacturing declined 0.1 percent in February, following a 0.5 percent drop in January.
Turning to the household survey, the civilian unemployment rate slipped to 4.5 percent from 4.6 percent in January. The markets had projected no change in the unemployment rate. Household employment actually slipped 38,000 in February, following a modest 31,000 increase in January. But the labor force fell even more - by 190,000 in February, while the number of unemployed fell 152,000. The employment-population ratio edged down to 63.2 percent from 63.3 percent in January.
Overall, today's employment report shows a healthy economy with wages on the strong side but wages lag in the business cycle. The Fed will still be on hold; the bond market will not like the wages number; and equities will be mulling over which figure they should focus on - moderate job growth or strong wages. However, equities seem to want to see the numbers in a favorable light - the report does not point to recession or growth that is too weak. The soft landing is still on.
Nonfarm payroll employment growth slowed to a 111,000 gain in January. January's increase was notably slower than in recent months as December payrolls advanced by 206,000 and November by 196,000. Gains need to average in the 100,000 to 120,000 vicinity to help ease the unemployment rate. The civilian unemployment rate remains low at 4.6 percent in January. The January employment report had good news on the inflation front as average hourly earnings decelerated to a 0.2 percent increase in January, following a 0.4 percent boost in December. Given last week's nervousness over the strength of the economy, a moderately healthy gain in payroll jobs combined with a modest increase in wages is what the markets would likely see as remaining on the proverbial soft landing.
Nonfarm payrolls Consensus Forecast for February 07: 95,000
Range: 40,000 to 150,000
Unemployment rate Consensus Forecast for February 07: 4.6 percent
Range: 4.5 to 4.7 percent
Average workweek Consensus Forecast for February 07: 33.8 hours
Range: 33.7 to 33.9 hours
Average hourly earnings Consensus Forecast for February 07: +0.3 percent
Range: +0.1 to +0.4 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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