The February Employment Report

Nonfarm payrolls rose by a disappointing 20,000 in the initial estimate for February, following a strong 311,000 gain in January. However, it appears that mild weather helped to boost the January figure and depressed the February data. With the partial government shutdown behind us, the unemployment rate fell back to 3.8%. Tight labor market conditions continued to add to wage pressures.

Recall that the employment report consists of two separate surveys. From the establishment survey (which samples 142,000 businesses and government agencies representing about 689,000 individual worksites), we get nonfarm payrolls, average weekly hours, and average hourly earnings. From the household survey (which samples 60,000 households), we get the unemployment rate and labor force participation. The establishment survey covers the pay period that includes the 12th of the month. The household survey is taken during the week that includes the 12th. Weather can have an impact. A worker unable to show up due to adverse weather should still be included in the payroll total (provided that they worked at some point in that pay period, but hours would be reported lower.

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Adverse weather typically has a greater impact on manufacturing and construction. Prior to seasonal adjustment, construction jobs fell 241,000 in January, less than normal, resulting in a 53,000 seasonally adjusted gain. Unadjusted, construction jobs fell by 10,000 in February, vs. an 111,000 gain in February 2018. Average weekly hours decreased in February, which also suggests a weather impact.

The Bureau of Labor Statistics noted that the partial government shutdown had no discernable impact on the nonfarm payrolls figures in January. However, according to the BLS, the shutdown did contribute to a rise in the unemployment rate (to 4.0%). The unemployment rate fell to 3.8% in February, down to 3.2% for the prime-age cohort (those aged 25-54). The employment/population ratio for this key age cohort held steady at 79.9% in February (vs. 79.2% a year ago – not far from where it was before the financial crisis.

The tight labor market has contributed to upward pressure on wages. Average hourly earnings for production workers rose 3.5% from a year ago. The Fed’s Beige Book, based an anecdotal information collected on or before February 25, noted that “labor market remained tight for all skill levels, including notable worker shortages for positions relating to information technology, manufacturing, trucking, restaurants, and construction.” Wages “continued to increase for both low- and high-skilled positions across the nation,” and a majority of Fed districts reporting moderately higher wages. Meanwhile, “contacts in about half of the Districts noted rising non-wage forms of employee compensation, including bonuses, relocation assistance, vacation time, and flexible work arrangements.”