"Goldilocks": February Payrolls Smash Expectations, Soar By 313K But Hourly Earnings Miss

There was good and bad news in the just released payrolls report: on one hand, February payrolls soared by a whopping 313K, smashing expectations of 205K, and well above last month's upward revised 239K (from 200K). This was the biggest monthly increase since October 2015.

The change in total nonfarm payroll employment for December was revised up from +160,000 to +175,000, and the change for January was revised up from +200,000 to +239,000. With these revisions, employment gains in December and January combined were 54,000 more than previously reported.

The unemployment rate failed to drop to 4.0% as expected, remaining unchanged at 4.1%.

Here Goldman was right: the black unemployment rate dropped sharply, back to 6.9%, but even with that drop it was not enough to push the overall unemployment rate higher.

The reason for the flat unemployment rate is that the participation rate jumped notably, rising from 62.7% to 63.0%, the highest since September.

Now for the not so good news, which confirm that the February wage spike was to be short-lived, as hourly wages rose only 2.6% last month, below the 2.8% expected, with the February outlier of 2.9% also revised lower to 2.8%. This was in large part due to the increase in the workweek to 34.5 from 34.4 last month, which was a major reason for the spike in average hourly earnings in February.

The lack of notable wage growth even with the whopping payrolls addition confirms that a lot of slack still remains in the jobs market, or a return to the "Goldilocks" narrative, which as Bloomberg commentator Paul Dobson puts it, "Big beat on payrolls plus miss on average hourly earnings is great news for stocks (cheap labor) and may leave bonds/the dollar little changed."

Citi confirms:

"This favors the ‘goldilocks’ economy scenario – where the economy is not so hot it’s causing high inflation, but not so cold it’s causing recession concerns. It's "just right."

More details from the report:

Total nonfarm payroll employment rose by 313,000 in February. Job gains occurred in construction, retail trade, professional and business services, manufacturing, financial activities, and mining.

In February, construction employment increased by 61,000, with gains in specialty trade contractors (+38,000) and construction of buildings (+16,000). Construction has added 185,000 jobs over the past 4 months.

Retail trade employment increased by 50,000 over the month. Within the industry, employment rose in general merchandise stores (+18,000) and in clothing and clothing accessories stores (+15,000). However, over the past 4 months, which traditionally see the bulk of the holiday hiring and layoff, employment in these industries has changed little on net. Elsewhere in retail trade, building material and garden supply stores added jobs over the month (+10,000).

Employment in professional and business services increased by 50,000 in February and has risen by 495,000 over the year. Employment in temporary help services edged up over the month (+27,000).

Manufacturing added 31,000 jobs in February. Within the industry, employment rose in transportation equipment (+8,000), fabricated metal products (+6,000), machinery (+6,000), and primary metals (+4,000). Over the past year, manufacturing has added 224,000 jobs.

Financial activities added 28,000 jobs over the month, with gains in credit intermediation and related activities (+8,000); insurance carriers and related activities (+8,000); and securities, commodity contracts, and investments (+5,000). Over the year, financial activities has added 143,000 jobs.

Employment in mining rose by 9,000 in February, with most of the increase in support activities for mining (+7,000). Since a recent low in October 2016, mining has added 69,000 jobs.

Employment in health care continued to trend up in February (+19,000), with a gain of 9,000 in hospitals. Health care has added 290,000 jobs over the past year.

Employment in other major industries, including wholesale trade, transportation and warehousing, information, leisure and hospitality, and government, showed little change over the month.

The average workweek for all employees on private nonfarm payrolls rose by 0.1 hour to 34.5 hours in February. In manufacturing, the workweek increased by 0.2 hour to 41.0 hours, while overtime edged up by 0.1 hour to 3.6 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls increased by 0.2 hour to 33.8 hours.

In February, average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents to $26.75, following a 7-cent gain in January. Over the year, average hourly earnings have increased by 68 cents, or 2.6 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 6 cents to $22.40 in February.

The change in total nonfarm payroll employment for December was revised up from +160,000 to +175,000, and the change for January was revised up from +200,000 to +239,000. With these revisions, employment gains in December and January combined were 54,000 more than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.) After revisions, job gains have averaged 242,000 over the last 3 months.