- Nonfarm payrolls rose by a better-than-expected 379k jobs in February. On top of that, net revisions to December and January added 38k jobs. The unemployment rate fell slightly to 6.2%.
- Fed speakers have been referring to a 10% underlying unemployment rate in speeches recently. This figure adds back workers who have left the labor force, but would like a job. That underlying rate barely fell in February to 10.1%, from 10.2% in January, and is up from 6.7% a year ago.
- Most of the job gains occurred in leisure and hospitality (+355k), as pandemic restrictions eased in parts of the country. Restaurants and bars added back 286k workers. However, leisure and hospitality employment remains down 20% versus a year ago. Smaller gains were seen in temporary help services (+53k), health care and social assistance (+46k), retail trade (+41k), and manufacturing (+21k).
- Still, there were job losses in some areas. Construction shed 61k jobs, largely in nonresidential construction. However, the BLS suggests that this may have been affected by the severe weather across large sections of the country in February. Local government education (-37k) and state government education (-32k) both shed jobs after gains the prior month likely driven by atypical seasonal patterns due to the pandemic. Even so, state and local government employment is down 7% versus a year ago, worse than the 6.2% hit in the private sector.
- The labor force participation rate remained unchanged at 61.4%, down from 63.3% a year ago, as 4.2 million people have left the labor force over the past year. The household survey saw a smaller 208K gain in jobs, which boosted the employment to population ratio to 57.6%, also down from 60.9% a year ago. Perhaps not surprisingly given the industry mix of jobs, teenagers (16-19 years) saw the biggest gain in labor force participation.
Key Implications
- Well that’s much better. After two months of malaise as the winter wave of infections weighed on close-contact services, job growth picked up in February. However, what would be a solid month of payroll gains in normal times only puts a small dent in the 9.5 million jobs that have been lost since February 2020. At the current pace it would take over two years for the economy to regain all the lost jobs.
- Fortunately, infection rates have come down and the vaccination campaign is gathering speed. We expect that will help job gains accelerate through the spring and summer, as consumers resume more activities that had been restricted (or people were reticent to do given the risk of infection). The Dallas Fed’s Mobility and Engagement index rose to the highest level since the pandemic last week, suggesting people are already beginning to resume old patterns.
- Washington is about to add to that momentum with the $1.9 trillion American Rescue Plan, set to pass Congress in the coming days. It will see many American households get an infusion of cash, and millions of unemployed retain their emergency benefits through August. This will help boost spending in the economy, providing businesses much-needed revenue and help prevent the temporary financial hardships of the pandemic from triggering more damaging defaults or other more permanent negative impacts on consumer finances.
