 | Non-Farm Payrolls Increased 236K in February, Easily Beating the Consensus Expected 165K |
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| Posted Under: Data Watch • Employment |
Implications: Another very solid report on the direction of the labor market: more jobs, more hours per job, and higher wages. Now that uncertainty related to the election and the fiscal cliff are behind us, expect to see more reports like this in 2013. Payroll gains easily beat consensus expectations for February, rising 236,000 (221,000 including revisions to prior months). The payroll gain was corroborated by the household survey, which saw a rise of 170,000 in civilian employment, an alternative measure of jobs that includes small business startups. It's hard to find anything bad on the direction of the labor market. Yes, the labor force contracted by 130,000, driving the labor force participation rate back down to a 63.5% (tying the lowest level since 1981). But the long-term downward trend for participation is largely driven by demographics and started more than a decade ago. Changes in the labor force are very volatile from month to month, but, in the past year, the labor force is up an average of 50,000 per month while the unemployment rate has dropped to 7.7% from 8.3%. In other words, we can't attribute the downward trend in the jobless rate to a shrinking labor force. The big question raised by continued declines in unemployment is how the Federal Reserve will react. It says a jobless rate of 6.5% could get it to start raising rates. But today's report undermines its projection that we won't reach 6.5% until mid-2015; it supports our case for mid-2014. No wonder bond yields jumped on today's report. In the next few weeks we will be watching the Fed closely to see if it starts making up excuses for why it might wait longer to raise rates after we hit 6.5%. Obviously, the labor market is very far from perfect. The unemployment rate is still way too high and, given technological advances, we should be creating more like 300,000 jobs per month, like in the 1990s. What's holding us back is the huge increase in government, particularly transfer payments, over the past several years. Another cause for concern is that in the past twelve months, nonfarm payrolls are up an average of 164,000 while civilian employment is up 115,000. Usually, at this point in the cycle, civilian employment is growing faster than payrolls. On the bright side again, total hours worked are up 1.6% from a year ago, while average hourly earnings are up 2.1%. As a result, total cash earnings are up 3.7% from a year ago (and about 2.0% when adjusted for inflation), so consumers have room to keep increasing spending. The plow horse recovery continues, and he may be picking up his pace.
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