March 08, 2024
The economy continued to create jobs at a rapid pace last month, with payroll employment up by 275,000. However, any concerns about an excessive pace of job growth are alleviated by the fact that the prior two months’ total was revised down by 167,000. This puts the three-month average at 265,000.
The household survey showed a less encouraging picture. The unemployment rate rose 0.2 percentage points to 3.9 percent as employment actually fell by 184,000 in the household survey. The gap between job growth in the establishment survey and employment growth in the household survey over the last year now stands at 1,149,000.
As noted before, other labor market data, such as weekly unemployment claims and the ADP job numbers, seem far more consistent with the establishment survey. Also, if the household survey proves to be closer to the mark, then productivity is growing far more rapidly than the data now indicate.
Hours Jump, Reversing Reported Decline in January
As noted before, it seemed that the 0.2-hour decline in the length of the average workweek reported for January was weather-related. This seems borne out by a 0.1 increase reported for February. The story is even clearer with production and non-supervisory workers, where a reported 0.3-hour decline was completely reversed in February. Nonetheless, we are still looking at very slow hours growth in the quarter so far, with the index of aggregate hours only slightly higher than the index for the fourth quarter. This means that, barring a sharp jump in hours in March or large revisions, we should see another quarter of strong productivity growth.
Wage Growth Slows, Supporting the Case the January Jump Was an Anomaly
We saw an extraordinary jump in the average hourly wage in January, which raised concerns among some analysts that the pace of wage growth was reaccelerating. The average hourly wage increased by just 5 cents in February. This brings the annualized rate over the last three months to 4.0 percent, a rate that is roughly consistent with the Fed’s 2.0 percent inflation target, especially if we see some shift back from profits to wages.
Over the last year, the average hourly wage has increased by 4.3 percent, which is 1.2 percentage points faster than the rate of inflation. We continue to see the most rapid gains in the lowest-paying sectors. The hourly wage for production and non-supervisory workers in the leisure and hospitality sector has risen 5.6 percent over the last year.
Unemployment Was Below 4.0 Percent for 25th Consecutive Month
In spite of the drop in employment reported in the household survey, we had our 25th consecutive month of below 4.0 percent unemployment. The economy is closing in on the streak of 27 consecutive months in the late 1960s. The rise reported in February is concerning, but it does seem to go against most other economic data we are seeing.
Share of Unemployment Due to Quits Falls
Another note on the pessimistic side is that the share of unemployment due to voluntary quits fell to 11.0 percent, the lowest level since September of 2021. This is not a level that is consistent with a strong labor market. We had hit a peak of 16.0 percent in 2022, which was an extremely tight labor market. In the last year before the pandemic, the share of unemployment due to quits averaged 13.6 percent.
Employment Rate for College Grads Falls by 0.7 Percentage Points
While the unemployment rate for workers with just a high school degree or some college edged down slightly, the unemployment rate for college grads edged up by 0.1 pp. However, more striking than this rise in employment was a drop of 0.7 pp in the employment to population ratio for college grads to 70.5 percent. Part of this was just the reversal of a 0.4 pp rise reported for January, but the employment to population (EPOP) ratio was nonetheless the lowest since November of 2021.
Prime Age EPOPS Edge Higher
While the overall EPOP slid down by 0.1 PP, the EPOP for prime age workers (ages 25 to 54) edged up 0.1 PP to 80.7 percent. This is 0.2 PP below the peaks hit last year, but 0.1 PP above the pre-pandemic peak. The 86.3 percent rate for men is 0.3 PP below peaks hit last July and 0.4 PP below the pre-pandemic peak. The 75.2 percent rate for women is 0.1 PP below peaks hit last fall, but 0.5 PP above the pre-pandemic peak.
Healthcare Again Leads Job Gains
The health care sector added 66,700 jobs, accounting for almost a quarter of the month’s job growth. This is slightly above its average monthly growth of 60,000 over the last year. The restaurant sector was also a big gainer, adding 41,600 jobs in February. This more than reversed a likely weather-related decline of 11,700 reported for January.
The government sector was a big job gainer, adding 52,000 jobs. Local governments accounted for the bulk of the gains, adding 38,000 jobs. Government employment has badly lagged private sector employment, having only passed pre-pandemic levels last fall.
Construction continued to have healthy job gains, adding 23,000 jobs. There were small declines in residential construction, which was more than offset by job growth in non-residential. Manufacturing lost 4,000 jobs, all in the non-durable sector. Manufacturing employment is still up by 24,000 from its year ago level, with employment in the durable sector up by 74,000. Employment in non-durables has fallen by 50,000 over the last year.
Another Very Solid Jobs Report
For the most part, this jobs report is exactly what the doctor ordered. The January data raised concerns that we were seeing a serious reacceleration in the labor market, with jobs and wages growing at rates that could not be sustained without leading to serious problems with inflation. With the sharp downward revisions to job growth and the modest wage growth reported for February, this no longer seems to be the case.
The slow growth in aggregate hours, coupled with reports indicating another good quarter for GDP growth, indicates that we are likely to see another strong productivity figure this quarter. This strengthens the case that the productivity upturn is real.
The rise in the unemployment rate, along with the employment loss in the household survey, is some cause for concern. This weakness is out of line with almost everything else we see in the economy, but it is nonetheless hard to ignore. Still, the overall picture from this report is very positive.
