This week’s jobs report had something for everyone. The headline number showed another upside beat on payrolls, with employers adding 313,000 jobs in February. This was well above expectations and continues the trend of strong job growth seen over the past year or so. However, other elements of the report showed signs of some softness in the labor market. Wage growth continued to decelerate, with average hourly earnings increasing by just 0.1% month-over-month. Additionally, there were some signs of financial strains emerging, as layoffs increased and the number of people quitting their jobs hit a new all-time high.
Job creation decelerated in February but was still stronger than expected despite the Federal Reserve’s efforts to slow the economy and bring down inflation. The 313,000 jobs added was the smallest gain since last September, but it still exceeded economists’ consensus expectation of 205,000. On a year-over-year basis, employment has grown by 2.6% compared to February 2018.
The unemployment rate ticked up slightly to 4.0%, though that was largely due to more people entering the labor force in search of jobs. The broader U-6 measure, which includes part-time workers who want full-time work, rose from 8.1% to 8.2%.
Average hourly earnings data revealed that wage growth had started to decelerate as well, with average hourly earnings increasing by just 0.1% month-over-month and 3.2% year-over-year in February. This was the weakest wage growth since July 2018, and could be attributed to a few factors such as a strong dollar, slowing inflation, and the tight labor market.
Despite the weaker than expected jobs report there were still some bright spots. Nonfarm payrolls rose by 311,000 for the month, the Labor Department reported Friday. That was above the 225,000 Dow Jones estimate and a sign that the employment market is still hot.https://datawrapper.dwcdn.net/GoFIR/1/
The Bureau of Labor Statistics’ survey of households revealed a 177,000 increase in unemployment. Consequently, the rate rose from 3.4% to 3.6%, accompanied by an uptick in labor force participation rate to its highest level since March 2020 – 62.5%. Even more concerningly, the broader measure of unemployment that includes those working part-time due to economic reasons and discouraged workers increased 0.2 percentage points up to 6.8%.
Despite the lower than expected figures, there was some encouraging news on the inflation front. The average hourly earnings grew 4.6% from a year ago – this figure fell short of expectations for 4.8%. On top of that, monthly increases in wages were 0.2%, again missing its targeted mark of 0.4%.https://datawrapper.dwcdn.net/T0xgS/1/
Last month’s US jobs report exceeded expectations, yet February’s growth showed a decrease from January. Initially reported as 517,000 in nonfarm payrolls gain for the year-opening period, that total was revised only slightly to 504,000. December was lowered down too; however this time by 21,000 from the previous estimate at 239,000.
The jobs report is expected to keep the Fed on its trajectory of raising interest rates when it gathers once again in March. Nevertheless, traders have estimated a decreased chance that the central bank will boost rates by 0.5 percentage points; yielding only 48.4% probability, or almost a coin flip according to CME Group estimates.
The leisure and hospitality sector added 105,000 jobs in 2020; a figure that is right on par with the 91,000 average gain over the past six months. Additionally, retail saw an increase of 50,000 jobs while government grew by 46k and professional and business services surged up to 45k. Meanwhile, manufacturing and construction both showed decreases with losses of 2k and 10k respectively. This is a stark contrast to 2019, which saw exceptional growth in these two industries despite the ongoing trade war between China and the US.
But information-related jobs declined 25,000, while transportation and warehousing lost 22,000 jobs for the month.
“It’s no longer accurate to say without reservation that the labor market is a bright spot in the economy. From 35,000 feet, the picture still looks sterling, but digging an inch beneath the surface, there are clear pockets of softening,” said Aaron Terrazas, chief economist at jobs review site Glassdoor.
The U.S. economy and consequently Fed policymakers hinge upon the impending jobs report, making it a pivotal moment for all involved.
Over the past 12 months, the central bank has hiked its benchmark interest rate eight times – taking it to a range of 4.5%-4.75% – in order to stimulate economic growth and inflationary pressure.
As prices stabilized at the end of 2022, markets anticipated that the Federal Reserve would not raise their rates as much. This expectation was confirmed in February when they authorized a 0.25 percentage point increase and revealed only minor hikes for future months.
What does this mean for recruiting?
The employment market is still strong, but employers will be more cautious about making hiring commitments in the near future. As price stability and inflationary pressure remain under scrutiny, businesses should consider setting their recruitment goals to a more conservative level until further notice. The Fed’s decision to hold off on rate hikes could lead to an overall slower rate of job growth in the near future. However, as businesses are forced to be more judicious when making hiring decisions, employers can benefit from a stronger pool of talent and better-matched candidates for their needs.
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