February Payrolls Smash Expectations Surging To 678K, Highest Since July, But Wages Disappoint

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by Tyler Durden
Friday, Mar 04, 2022 - 01:35 PM

As noted earlier, it was difficult to get worked up about today's jobs report in light of the barrage of geopolitical development, and yet if anyone needed a confirmation that the Fed will hike by 25bps in two weeks, they just got it when the BLS reported that in March, total jobs surged by a whopping 678K, much higher than the 423K consensus forecast, higher than last month's upward revised 481K and the highest since last July's 689K. However, offsetting this surge was the unexpectedly weak wage data, which saw a flat print in the monthly change in average hourly earnings vs expectations of a 0.5% increase (and down from 0.6% in February).

The change in total nonfarm payroll employment for December was revised up by 78,000, from +510,000 to +588,000, and the change for January was revised up by 14,000, from +467,000 to +481,000. With these revisions, employment in December and January combined is 92,000 higher than previously reported (following last month's massive upward revisions).

The total number of people on payrolls is now just 2.1 million lower than the record high reached in February 2020. At the February pace of job gains, that gap will be closed in three months.

The unemployment rate edged down to 3.8 percent, and the number of unemployed persons edged down to 6.3 million. In February 2020, prior to the coronavirus pandemic, the unemployment rate was 3.5 percent, and the number of unemployed persons was 5.7 million. Among the major worker groups, the unemployment rates for adult men (3.5 percent) and Hispanics (4.4 percent) declined in February. Of note, the Hispanic unemployment rate is now back to pre-covid levels. The unemployment rate for Black workers dropped to 6.6% in February. That was led by men, while unemployment for women ticked up in the month.The jobless rates for adult women (3.6 percent), teenagers (10.3 percent), Whites (3.3 percent), Blacks (6.6 percent), and Asians (3.1 percent) showed little or no change over the month.

And while the labor force participation rose modestly 62.2% to 62.3%, with the employment-population ratio edging up to 59.9 percent...

... the underemployment rate also rose modestly from 7.1% to 7.2%

Among the unemployed, the number of persons on temporary layoff, at 888,000 in February, was little changed over the month. The number of permanent job losers, at 1.6 million in February, also changed little. Both measures are higher than their February 2020 levels of 780,000 and 1.3 million, respectively.

  • There were also 418,000 more people working part-time who wanted more hours, with a total of 4.1 million in that position; this remains below its February 2020 level of 4.4 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.
  • The number of persons not in the labor force who currently want a job declined by 349,000 to 5.4 million in February. These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job.
  • Among those not in the labor force who wanted a job, the number of persons marginally attached to the labor force, at 1.5 million, changed little in February. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months but had not looked for work in the 4 weeks preceding the survey. The number of discouraged workers, a subset of the marginally attached who believed that no jobs were available for them, was little changed over the month at 391,000.

Covid continued to impact numbers, with the BLS reporting that in February, 4.2 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic (that is, they did not work at all or worked fewer hours at some point in the 4 weeks preceding the survey due to the pandemic). Still, this measure is down from 6.0 million in the previous month. Among those who reported in February that they were unable to work because of pandemic-related closures or lost business, 20.3 percent received at least some pay from their employer for the hours not worked, down from 23.7 percent in January.

While job growth surprise to the upside, wage growth was the one downer for workers: Despite higher than expected payroll gains, average hourly earnings dropped from 5.5% in Jan to 5.1% Y/Y in Feb and below the expectations of 5.8%, while as noted above the sequential change was flat, a big disappointment to expectations of a 0.5% increase (and down from 0.6% in January) Average hourly earnings for all employees on private nonfarm payrolls, at $31.58 in February, were little changed over the month (+1 cent), after large increases in recent months. In February, average hourly earnings of private-sector production and nonsupervisory employees rose by 8 cents to $26.94.

Commenting on the flat average hourly earnings numbers, Bloomberg chief economist Carl Riccadonna said these are largely the result of a big influx/rebound of lower-wage industries accounting for a large share of hiring gains. Adding lots of lower-wage workers brings the median and average lower. “This is not new -- this dynamic has roiled the monthly statistics repeatedly throughout the pandemic.”

In part, the drop in average earnings was due to a solid increase in average hours worked, which rose from an upward revised 34.6 (was 34.5) to 34.7, beating expectations of an unchanged print.  In manufacturing, the average workweek for all employees increased by 0.4 hour to 40.7 hours, and overtime rose by 0.2 hour to 3.6 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was up by 0.1 hour to 34.1 hours.

A breakdown of jobs by category:

  • Employment in leisure and hospitality continued to increase, with a gain of 179,000 in February. Job growth occurred in food services and drinking places (+124,000) and in accommodation (+28,000). Since February 2020, employment in leisure and hospitality is down by 1.5 million, or 9.0 percent.
  • Professional and business services added 95,000 jobs in February. Job gains occurred in temporary help services (+36,000), management of companies and enterprises (+12,000), management and technical consulting services (+10,000), and scientific research and development services (+8,000). Employment in professional and business services is 596,000 higher than in February 2020, largely in temporary help services (+240,000), computer systems design and related services (+154,000), and management and technical consulting services (+152,000).
  • Employment in health care rose by 64,000 in February. Job gains occurred in home health care services (+20,000), offices of physicians (+15,000), and offices of other health practitioners (+12,000). Employment in health care is down by 306,000, or 1.9  percent, from its level in February 2020.
  • Construction added 60,000 jobs in February, following little change in the prior month. About three-fourths of the over-the-month job gain occurred in specialty trade contractors, with increases in both the residential (+24,000) and nonresidential (+20,000) components. Construction employment is slightly below (-11,000) its February 2020 level.
  • Employment in transportation and warehousing increased by 48,000 in February and is 584,000 higher than in February 2020. Over the month, job gains continued in warehousing and storage (+11,000), couriers and messengers (+9,000), support activities for transportation (+9,000), and air transportation (+7,000). All four of these component industries have surpassed their February 2020 employment levels, with particularly strong job growth in warehousing and storage (+420,000) and couriers and messengers (+240,000).
  • Employment in retail trade rose by 37,000 in February, with gains in building material and garden supply stores (+12,000), furniture and home furnishings stores (+6,000), and gasoline stations (+5,000). Retail trade employment is 104,000 above its level in February
  • 2020.
  • Manufacturing added 36,000 jobs in February. Employment in durable goods industries rose by 20,000, with job gains in fabricated metal products (+11,000), machinery (+8,000), electrical equipment and appliances (+4,000), nonmetallic mineral products (+3,000), furniture and related products (+3,000), and primary metals (+3,000). These gains were partially offset by a job loss in motor vehicles and parts (-18,000). Nondurable goods manufacturing also added jobs over the month (+16,000). Since February 2020, manufacturing employment is down by 178,000, or 1.4 percent.
  • Employment in financial activities rose by 35,000. Job gains were split between finance and insurance (+16,000) and real estate (+16,000). Employment in financial activities is 31,000 above its level in February 2020.
  • Social assistance added 31,000 jobs in February, with a gain of 21,000 jobs in individual and family services. Since February 2020, employment in social assistance is down by 152,000, or 3.5 percent.
  • Employment increased by 25,000 in the other services industry in February, led by a gain in repair and maintenance (+10,000). Employment in the other services industry is down by 317,000, or 5.3 percent, from its level in February 2020.

Commenting on the strong jobs report, Jeffrey Rosenberg of BlackRock told Bloomberg TV that “The market’s focus is really not on payrolls” adding that “This is a really a difficult period for markets. Because, as we heard earlier this week, the Fed is focused on inflation and its need to get on with normalization and raise rates, while the market is focused on the implications of the Russian invasion -- and that implication is a negative supply shock, negative to growth, positive to inflation.”

Bloomberg rates strategist Ira Jersey notes that “with real wages falling, fears of a recession may grow even as inflation seems set to remain high. For the rate markets, this may mean some modest yield-curve steepening in the near term. We think the Fed will still hike to above 2% over time, but it will take another year or so than the market has been pricing. We still look for four or five hikes this year along with the start of balance sheet runoff in 3Q.”

Flipping to Bloomberg reporter Chris Antsey, he writes that "on the face of it, it’s a perfect report: You’ve got strong job gains, people coming off the sidelines of the labor market, unemployment dropping even faster for disadvantaged communities. And -- good from a Fed policy maker perspective -- no wage inflation, which should help pull down inflation."

Bottom line: a 25bps hike is now certain but how much more the Fed will be able to hike into clear global stagflation before the next recession hits, is the real mystery.