The BLS employment report surprised on the upside in February. Payroll jobs were down 36,000 on the month, but this outcome was much better than consensus expectations of a decline of 68,000 and our own estimate calling for a weather-related drop of 150,000. This outcome is all the more encouraging given that BLS counted a million workers who could not get to work during to work on the month. So what is the underlying trend in U.S. labour markets?
To find the answer, we recommend switching to the “weather-repellent” household survey from which the unemployment rate is derived. This survey is normally more volatile, but unlike the establishment survey from which payroll jobs are derived, it is much less impacted during episodes of severe weather conditions. As it turns out, the household survey showed an increase of 308,000 jobs in February, the second increase in a row.
As today’s Hot Chart shows, the 3-month moving average indicates that job creation has already resumed in the U.S., a development that we expect to see confirmed by the payroll survey as soon as next month. What’s more, it is extremely encouraging to see that the household survey showed two consecutive months of full-time job creation through February. As shown, this is the first such occurrence since the onset of the recession.
NBF Financial
Other positives from the employment report:
1. The prior two months payroll employment were revised up a net of +35,000.
2. There were two one-time events this month. First, census workers added +15,000. Second, winter storms disrupted normal seasonal hiring.
3. The manufacturing and headline workweeks fell sharply. That was clearly weather-related.
4. Mfg employment edged up +1,000, a second consecutive monthly gain. The employment picture in manufacturing is broadening beyond motor vehicle sector. The diffusion index for manufacturing rose smartly.
5. Temp employment, another leading indicator for employment, rose 48,000.
And here is David Rosenberg’s bearish view, just to keep you on your toes:
The Household survey showed a decent 308,000 increase in February, which may have caught the eye of Mr. Market, but this number was less pristine than it appears on the surface. First agricultural and related employment surged 198k, which ranks as the fourth largest increase in 25 years. So, the same month that we endured one of the stormiest months, weather-wise, in recent memory, the farming community went out and hired a handful of corn planters. The rest of the Household survey was government related, therefore, what we see out of this survey was that private sector nonfarm workers actually fell 89,000 (and not weather affected).
Those working part time “for economic reasons” also jumped 475,000 in February, or 5.7%, in the steepest runup since last year when everyone seemed to believe that the Battle of Mediggo was around the corner. And, while the headline unemployment rate managed to stabilize at 9.7% compared with consensus views of a modest uptick, the more inclusive U6 measure, which takes into account the overall level of underemployment in the economy, rose to 16.8% from 16.5%.
One arcane statistic that still shows this to be an employers’ market, the “quit rate” — an old Greenspan favourite that illustrates worker confidence in the jobs outlook — dropped 5.7% from 6.1% and now stands at a five-month low. Perhaps it is because of this relentless large degree of slack in the labour market and the low level of worker security that we are seeing wage growth slow down as much as it has, even in the face of a statistical tentative recovery, with average weekly earnings down 0.2% MoM in February — the second decline in the past three months — and now just 100 basis points away from deflating outright on a year-over-year basis.
The message to Mr. Market is that while there was much to cheer about in terms of the headline payroll number, there is still enough rot in the labour market below the surface that should still be a cause for concern in terms of the sustainability of the nascent economic recovery.
In terms of sectors, as we mentioned, it is certainly encouraging to see the revival of the U.S. manufacturing sector take hold after years of competitive currency devaluation and tremendous efforts to boost productivity growth and cut costs. Health and education remain the secular bright spots, adding 32,000 jobs last month.(…)Adding up temp agency and health/education, we get less than 20% of the employment pie generating 80,000 jobs last month; the other 80% lost 116,000. While we are seeing improvement in the jobs market compared to where we were six and 12-months ago, we are concerned that investors may be lulled into a sense that things are better than they really are, especially in view of the media treatment of the data, not to mention the immediate positive reaction we are seeing across a broad array of risk assets.
Meanwhile, again beneath the veneer, what we see is a large swath of cyclical industries that are still shedding jobs:
• Construction (-64,000)
• Accommodation/food (-2,300)
• Financials (-10,000)
• Retail (-400)
• Transports (-12,000)
• Information services (-18,000)
• Of course, the State and local levels of government are in pervasive cutback mode, laying off 25,000 public servants last month (down four months in a row).
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