Despite Bad Weather, Another Strong Month for Job Growth
- The February Payroll Employment Survey showed a stronger-than-expected gain of 295,000 payroll jobs.
- The Unemployment Rate for February fell to 5.5 percent.
- Average Weekly Hours for all employees were steady at 34.6 hours.
- Average Hourly Earnings were up by 3 cents in February, gaining 2.0 percent over the previous year.
- The U.S. International Trade gap narrowed in January to $41.8 billion.
The U.S. jobs machine remains in high gear. Despite bad weather, 295,000 payroll jobs were added on net in February. Job gains were broad-based but there was a decline in the mining sector of 9,300 jobs, consistent with lower crude oil prices and the steep drop in the U.S. rotary rig count. This loss of 9,300 jobs does not align with the much larger announced layoffs and other anecdotal reports of cutbacks in the oil patch, so we expect to see larger job losses reported for mining in the months ahead. The unemployment rate fell from 5.7 percent in January to 5.5 percent in February, and remains on track to end this year at or below 5.0 percent. Over the previous 12 months average hourly earnings for all workers are up a modest 2.0 percent, but consumer price inflation is weak at -0.1 percent over the year ending in January. In other words, the drop in energy prices has been a boon to households despite modest real wage gains. We expect to see more wage inflation through the second half of this year as labor markets tighten up.
Outside of the mining sector, payroll job gains were broad-based. Construction industries added 29,000 jobs in February, after seasonal adjustment, almost all in residential trades. Manufacturing added 8,000 jobs for the month, weighed down by a loss of 5,700 jobs in petroleum and coal products, influenced by striking refinery workers. Wholesale trade employment was up by 11,700 jobs, while retail trade added 32,000 jobs in February. Transportation and warehousing gained 18,500 jobs for the month. Information systems employment increased by 7,000 while financial activities gained 10,000 jobs. Professional and business services employment continued to grow strongly, up by 51,000 jobs in February. Education and healthcare was up smartly, by 54,000 jobs. Leisure and hospitality industries did not relax; they gained a strong 66,000 jobs for the month. Government employment was up by 7,000 in February.
The strong February jobs report sets the stage for the Federal Reserve to take yet another step toward monetary policy normalization at the upcoming March 17-18 FOMC meeting. We expect the Fed to modify their forward guidance on interest rates by removing the word “patient” from their analysis. This small change will reinforce market expectations of interest rate lift-off this year. We continue to expect to see a small increase in the fed funds rate announced on June 17, with September 17 a reasonable second choice.
The U.S. international trade gap narrowed in January to $41.8 billion. That sounds good, but it was not a particularly robust report. The trade figures are muddied by the drop in oil prices and by the now-resolved labor issues on California docks. Imports dropped by $9.4 billion for the month. Exports dropped by less, $5.6 billion, so the net balance of trade improved. It is too early to say with conviction, but trade is starting out Q1 as a net drag on GDP.
Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is up to 2.24 percent. NYMEX crude is down to $50.42/barrel. Natural gas futures are up to $2.82/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Employment 03-06-15.