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. Why Investors Care
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Highlights
Job growth did prove stronger than expected in February as non-farm payrolls rose 262,000, their best showing since October. Combined revisions to January and December were not significant, showing a net 8,000 gain.
Expectations were raised going into the report following yesterday's big jump in the ISM's non-manufacturing employment index. The rough consensus at the time of this morning's report was for a gain of 220,000.
Manufacturing payrolls showed a sharp increase of 20,000, the reading follows a long string of contractions and is the first gain since August. Construction also showed a big jump, rising 30,000 in a possible rebound from unusually severe weather in January.
Retail jobs were also sharply higher, rising 30,000 and possibly reflecting sales strength in February. Temporary help services also rose 30,000, perhaps suggesting that employers are adding part-time workers in anticipation of stronger demand.
Earnings and hours data were flat and shouldn't raise inflationary concerns. Average hourly earnings were unchanged though they are up 2.5% on the year, still however not likely exceeding productivity growth. The average workweek was unchanged at 33.7 hours, while factory hours slipped 12 minutes to 40.5 hours.
A twist in the report was a sudden uptick in the unemployment rate to 5.4% from 5.2%. The rise reflected an increase in the labor force and higher unemployment in the household survey, in what could be positive indications suggesting perhaps that discouraged workers are returning to the workforce. The employment-to-population ratio slipped but not significantly, down a tenth at 62.3%.
The financial markets, well prepared for strong data, showed little reaction to the report. The ISM report seemed to signal today's jump as did the steady decline in jobless claims, a sudden jump in the help-wanted index, and even a spike in the monster employment index.
Still the results are the best in months and should raise expectations for further economic growth. But they aren't strong enough to sway the Federal Reserve from its measured policy of 25-basis-point rate hikes, suggesting that future increases in interest rates will have only a limited effect on economic growth.
The employment report typically sets the tone for the economic data through the month. Though factory hours were soft, suggesting soft industrial production data, other readings point to strength ahead for the bulk of economic indicators.
Nonfarm payrolls increased 146,000 in January, a slight improvement over gains of the two previous months but still not robust; and manufacturing payrolls declined 25,000 last month. The downward trend in new jobless claims lately suggests that February payroll growth could improve significantly.
Nonfarm payrolls Consensus Forecast for Feb 05: 200,000
Range: 160,000 to 275,000
Unemployment rate Consensus Forecast for Feb 05: 5.2 percent
Range: 5.2 to 5.3 percent
Average workweek Consensus Forecast for Feb 05: 33.8 hours
Range: 33.8 to 34.1 hours
Average hourly earnings Consensus Forecast for Feb 05: 0.2 percent
Range: 0.2 to 0.3 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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