Highlights
The February jobs report came in notably weaker than expected and is making a strong case that the economy is now in recession and that the Fed needs to act aggressively. Payroll jobs have fallen for two consecutive months and January and December numbers both were revised down. The latest numbers add to the case for a Fed ease on March 18 but there also is some continuing strength in labor costs, adding to the Fed's quandary. Nonfarm payroll employment in February dropped another 63,000, following a revised decline of 22,000 in January and revised increase of 41,000 in December. February's decrease in employment was the largest since a 212,000 fall in March 2003. Also, February's decline in employment was notably worse than the consensus projection for a 25,000 rebound in payroll jobs and was led by sharp declines in manufacturing and construction jobs. The service-providing sector advanced modestly. Today's report indicates that the economy is weakening more broadly outside of just housing and that the overall economy is now contracting somewhat. Without monetary policy kicking in soon along with fiscal stimulus, the economy appears to be headed for a mild recession.

Not only was February weak, but the prior two months were revised down. The initial January estimate of a 17,000 drop was revised down 5,000 and December was revised down 41,000 from the previous estimate of an 82,000 increase. For January and December combined, the net revision was down 46,000.

Payroll survey weakness was led by the goods-producing sectors as manufacturing now appears to be weakening significantly. Manufacturing fell by 52,000 in February, following a 31,000 decline in January. Construction jobs dropped 39,000 after a 25,000 decline the prior month. Natural resources & mining, however, edged up by 2,000 in the latest month.

The service-providing sector advanced but at a slowing pace, rising a very soft 26,000, following a 32,000 increase in January. Private sector service-providing jobs actually declined 12,000 in February, after rising 28,000 in January. Service sector strength was in government, education & health services, and in leisure & hospitality. Notable declines were in retail trade, professional & business services, and in financial activities. Clearly, economic weakness is spreading to the service sector.

But wage based inflation pressure is still somewhat on the high side. On the inflation front, average hourly earnings advanced 0.3 percent in February, equaling January's boost. The latest month rise in wages was above the consensus forecast for a 0.2 percent increase. The average workweek was unchanged at 33.7 hours February. For manufacturing, the average workweek was unchanged at 41.1 hours in February. Aggregate hours in manufacturing dropped a sharp 0.5 percent in February, following a 0.1 percent dip the month before. The February number suggests a very weak industrial production figure for the month.

Turning to the household survey, the civilian unemployment rate actually dipped to 4.8 percent from 4.9 percent in January and came in below the consensus forecast for a rise to 5.0 percent. The household survey is much smaller and is more volatile than the payroll survey. It seems that labor markets remain somewhat tight in terms of workers retained but soft in terms of new hiring.

Today's numbers will raise expectations of Fed easing and should undermine the dollar as well as equities since the decline in jobs implies weaker revenues for companies. Treasury rates should soften both due to lower demand for loanable funds and due to flight to quality.

2008 Release Schedule

Released On: 1/4 2/1 3/7 4/4 5/2 6/6 7/3 8/1 9/5 10/3 11/7 12/5 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov