February Payrolls Shocker: Hiring Plunges To 20K As Wage Growth Soars

Just as we warned moments ago when we cautioned that the whisper number is for a sharply lower print than the expected 180K print, moments ago the BLS confirmed that in February the US labor market hit a brick wall, or perhaps a blizzard, when it added just 20K jobs in February...

... the lowest monthly gain in more than a year and far below all estimates, although revisions to the prior two month actually added another 12K jobs, with the January 304K print revised higher to 311K and Dec also revised higher from 222K to 227K.

As we noted earlier, at least one bank (Goldman) was expecting a drag of at least 40k from above-average snowfall during the February survey week. So the question is how much of the February print is accurate, and how much is weather/government shutdown related. Indeed, as the BLS notes, a whopping 390K people were not employed in February due to bad weather, roughly 80K more than the February average.

What is surprising is that while the Establishment Survey was a big miss, the Household Survey actually saw a big drop in the number of unemployed workers, which tumbled by 300K to 6.235MM.

Additionally, non-employment among the key worker demographic, those Americans aged 35 to 44, plunged in February to the lowest level in 12 years.

Another major surprise: while the jobless rate fell modestly to 3.8% from 4.0, the broader U-6 measure of unemployment plunged to 7.3% from 8.1%, the biggest monthly drop on record, after jumping last month.

The labor force participation rate remained flat at 63.2, while that for the key 25-54 age group continues to hover near post-recession highs, as the number of people not in the labor force increased from 95.01 million to 95.21 million even as the total civilian labor force declined from 163.229MM to 163.184MM.

Going through the report showed that Manufacturing payroll growth slumped to 4,000 (est. 12,000), though the prior month was revised up to 21,000 from 13,000; but the big surprise was construction jobs, which plunged by 31,000. At the same time, Leisure and hospitality showed no growth while education and health services barely grew.

Meanwhile, employees on temporary layoff fell to 820,000, a level in line with prior months, from 937,000 as effects of the government shutdown waned.

Countering the plunge in payrolls was continued strength in average hourly earnings topped both monthly and annual estimates with a 0.4% rise from January and 3.4% from a year earlier, the fastest pace of the economic expansion. The not so good news: most of the growth was due to a sharp drop in weekly hours worked, which declined from 34.5 to 34.4. As a result, average weekly earnings actually dropped in February.

Commenting on the report, Bloomberg economist Tim Mahedy said that "while employment gains in February were well below even the lowest consensus forecast, it is too early to sound the alarm on the labor market. Beyond the usual disclaimer that this is just one month of data, the January number -- already incredibly high -- was revised up and the net upward revision to the prior two months was 12k. Today's report looks more like payback from a strong January gain. It will, and should, raise some eyebrows, but we'll need a couple more months of data before we have a clear picture of where the labor market is headed in 2019."

Some more details from the report:

  • In February, employment in professional and business services continued to trend up (+42,000), in line with its average monthly gain over the prior 12 months.
  • Health care added 21,000 jobs in February and 361,000 jobs over the year. Employment in ambulatory health care services edged up over the month (+16,000).
  • In February, wholesale trade employment continued its upward trend (+11,000). The industry has added 95,000 jobs over the year, largely among durable goods wholesalers.
  • Employment in construction declined by 31,000 in February, partially offsetting an increase of 53,000 in January. In February, employment declined in heavy and civil engineering construction (-13,000). Over the year, construction has added 223,000 jobs.
  • Manufacturing employment changed little in February (+4,000), after increasing by an average of 22,000 per month over the prior 12 months.
  • In February, employment in leisure and hospitality was unchanged, after posting job gains of 89,000 and 65,000 in January and December, respectively. Over the year, leisure and hospitality has added 410,000 jobs.

The question then is how will the Fed interpret this rather stagflationary report: will the big drop in payroll growth be seen as seasonal, and "transitory" due to excess snowfall and the government shutdown, or will it mark an inflection point in the Fed's already pessimistic thinking. But what about surging wages, which are now growing at a 3.4% rate, the highest since the financial crisis: will the Fed ignore those too and "overheat" the economy as it keeps rate hikes on pause even as wage growth continues to ramp higher?