Is the Sky Falling?

The January jobs report startled labor market watchers with employment growth around 50 percent higher than expected (and now revised slightly upward to 311,000), and February has added its own excitement with extraordinary low employment growth—just 20,000 jobs were added last month.

Despite the surprise, we shouldn’t fear the worst just yet. After all, one data point does not a trend make. Here are some factors to consider:

1. We saw unexpected dips in an otherwise strong trend in job growth in September 2017 (18,000 new jobs) and May 2016 (15,000 new jobs).
2. The economy is coming off a surge in hiring (averaging over 230,000 new jobs created over the previous 3 months, 6 months, and 12 months).
3. The labor market may still be re-adjusting after the federal government’s shutdown that furloughed hundreds of thousands of workers for 5 weeks, leading many to work in temporary jobs.
4. The winter weather in February may have dampened hiring as well. 

While politicians are likely to twist this month’s shocking statistic to their own partisan advantage and some market watchers will probably warn of the return of a bear market, we should take a moment to breathe calmly and not jump to conclusions.

The economy is a complex system and its changes are often not a smooth process. We should take the bad with the good—January’s massive employment growth was not revised downward with updated data, making February’s disappointing news a bit easier to bear.

We’re still in the longest stretch of employment growth in US history and the headline unemployment rate is at the lowest level in decades. We’ve seen similar low-growth jobs reports twice in the last few years and in both cases, there were strong rebounds in employment growth in the following months. We shouldn’t listen to Chicken Little just yet.

Employment

Businesses added 20,000 jobs in January. The number of jobs reported from the business survey in December increased by 5,000 (from 222,000 to 227,000) and the January survey was revised upward by 7,000 jobs (from 304,000 to 311,000).

The values initially reported are estimates and subject to these revisions due to late respondents to the business survey. Last December’s initial estimates were revised substantially downward, so it’s encouraging that January’s blockbuster numbers didn’t suffer the same fate.

Unemployment

The number of people counted as officially unemployed fell by 300,000, more than reversing the rise last month. This is likely due to furloughed federal workers returning to work after the government shutdown. The headline unemployment rate (U-3) fell to 3.8 percent.

The number of people who were working part-time for economic reasons (like an inability to find full-time work, seasonal declines in demand, unfavorable business conditions, or government shutdown-related furlough) fell by 837,000 to 4.31 million, which is 16.9 percent of all part-time workers.

The number of people who wanted a job but weren’t actively seeking employment or currently available for work fell by 32,000 to 5.22 million. Meanwhile, the comprehensive jobless rate fell back to 6.8 percent, mostly due to the return of the headline unemployment rate to the pre-shutdown level.

Wages

Annual wage growth (for hourly earnings) rose to its highest level since April 2009, 3.4 percent, while weekly earnings grew 2.9 percent over the previous year. It’s slightly unusual that average weekly earnings growth dipped below average hourly earnings growth, but it may be due to winter weather-related issues in February reducing working hours.

Recent upticks in wage growth might be a hint that the labor market is finally starting to see the effect of a lack of available workers, but it might also reflect other factors, like increasing inflation or recent increases in the minimum wage in many states and cities. It’s really too soon to tell.

There’s also still over 6 million workers actively seeking employment, along with more than 5 million who say they want a job (but aren’t actively looking for one or currently available to work). As of the end of December, there were more job openings (7.3 million) than job-seekers, but that has been the case since April 2018 and we haven’t yet seen strong wage growth kick in as a result. It’s possible that workers are pursuing/employers are providing more workplace amenities and flexibility as an alternative to higher wages. This would mean that total compensation is increasing, even if the effect isn’t seen in direct earnings.

Quick Statistics from the February 2019 BLS Jobs Report

Headline Employment Statistics

• Total nonfarm payroll employment increased by 20,000 jobs.
• The labor force participation rate held steady at 63.2 percent.
• The headline unemployment rate (U-3) dropped by 0.2 percentage points to 3.8 percent.

Unemployment Statistics

• The mid- to long-term unemployment rate (15 weeks or longer; U-1) increased slightly to 1.4 percent.
• The discouraged worker unemployment rate (U-4) dropped by 0.2 percentage points to 4.1 percent.
• The comprehensive jobless rate (U-5b) declined by 0.2 percentage points to 6.8 percent.
• There was a sharp drop in the U-6 unemployment rate (0.8 percentage point decrease to 7.3 percent), which likely reflects furloughed government employees returning to their normal job after working a temporary job to make ends meet during the 5 week government shutdown (the U-6 unemployment rate includes part-time workers who would prefer to be working full-time).

Deeper Unemployment Statistics

• Long-term unemployed workers (27 weeks or longer) increased slightly to 1,271,000; the proportion of long-term unemployed workers increased to 20.4 percent of those who are unemployed.
• The number of people who wanted to work full time, but who could only find part-time work for economic reasons, fell substantially to 4.31 million. This is 347,000 fewer than reported in December before the government shutdown took effect. This accounted for 16.9 percent of all part-time workers.

Wages

• Average hourly earnings rose by 3.4 percent over the previous 12 months.
• Average weekly earnings rose by 2.9 percent over the previous 12 months.

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