The February NFP report clocked in a 192,000 increase in hiring, which was more or less what everyone expected. What’s great about the current jobs figure is that it’s more than THREE times as much as the previous month’s figure, which was revised upwards from 36,000 to 63,000.
Digging a little deeper into the report shows that private payrolls rose by 222,000 during the month, also higher than the 68,000 increase in January. Now that’s the largest jump in private hiring since April last year!
February marks the fifth consecutive month that the U.S. labor market has been showing some love. Still, those positive figures weren’t exactly ground-breaking since previous reports, such as the ADP non-farm employment change and labor components of the manufacturing surveys, hinted at strong jobs growth. What came in as a pleasant surprise was the unemployment rate which fell from 9.0% to 8.9% instead of rising to 9.1%. Boo yeah baby!
In the past, improvements in the unemployment rate were primarily due to a decrease in the labor force participation rate. The participation rate is basically the number of working-age people in a country who either have a job or are looking for one. It’s a basic measure of how confident a person is that he or she can get a job right now.
Thus, whenever the participation rate falls, it directly affects unemployment by causing it to fall. This can artificially create the notion that the unemployment rate has fallen, even though payrolls haven’t increased. Elementary mathematics, my dear Watson!
The good news is that this wasn’t the case this past February, as the participation rate remained the same at 64.2%!
This means that the drop in the unemployment rate was really caused by an increase in hiring. It appears that after bad weather conditions froze hiring (pun intended yo!) in January, the job market is now on the upswing.
Looking at other measures of employment, we see that the U-6 unemployment rate (which includes part-time workers) fell from 16.1% to 15.9%. Meanwhile, the employment to population ratio remained steady at 58.4% in February, indicating that the labor market may have finally found a bottom.
But let’s not get ahead of ourselves, cowboys. There are still plenty of weak points in the job market.
Aside from the fact that retail services have been cutting back on hiring, the overall employment to population ratio is still at an uncomfortably high level. To make matters worse, earnings growth has also been weak. Considering that commodity input costs are on the rise and profits are hard to come by, companies will probably think twice about hiring new workers or forking over more money for wage increases.
With that in mind, I think we could still see the jobless rate jump back up to 9.0% or 9.1% this year. Don’t get me wrong, I’m not just saying this to ruffle your feathers. You know that’s not how I roll! But the fact of the matter is that he gains we saw in February are just barely above what’s needed to keep the unemployment rate from rising. We’ve still got a loooong way to go before job growth reaches the levels needed to address the growth of the labor force.
But hey, at this point in time, maybe a little optimism is justifiable. Although it’s still far from pre-recession levels, the recent numbers are definitely a step in the right direction. Employment has been down for so long now, and it’s been months since it last gave us reason to smile. I just hope it can keep us smiling in the months to come.