US Job Growth Slowed in February, but Average Earnings Rose

US Job Growth Slowed in February, but Average Earnings Rose

The US economy added only 20,000 jobs last month, according to the Labor Department’s latest jobs report, marking a sharp slowdown from a streak of monthly gains in the hundreds of thousands. The unemployment rate, however, fell from 4.0 to 3.8 percent, while the number of people employed part time for economic reasons decreased by 837,000 to 4.3 million, following a sharp increase in January attributed to the federal government shutdown that month. The return of furloughed federal employees also contributed to the decline in the overall unemployment rate.

The number of new jobs fell far short of economists’ predictions, which were in the range of 170,000-180,000. Employment in fields like professional services and health care continued to increase apace with recent trends, but the construction sector cut 31,000 jobs and manufacturing added only 4,000. Employment in other industries like retail, leisure, and hospitality stagnated.

The contrast with other recent months is even more striking as the numbers of new jobs created in December and January were both revised upward slightly, to 227,000 and 311,000 respectively. This sudden swing from robust to lackluster job growth is difficult to interpret as it may signal a slowdown be just a blip in the data, the New York Times notes:

January’s payroll gains were exhilarating. February’s numbers were disappointing. Together they offer a potent reminder that each monthly employment report from the Labor Department captures just a moment in time. Longer-term trends are what matter, and the streak of job growth continues to set records. …

Still, as Carl Tannenbaum, chief economist of Northern Trust in Chicago, said: “This is a disappointing report. I don’t think there’s any way to sugarcoat it.” Rising wage growth is good for workers, but combined with soft payroll growth, he said, “it’s a signal we need to be cautious with the U.S. economic outlook.”

As far as American workers are concerned, the bright spot in Friday’s report was in wages: Average hourly earnings rose 0.4 percent in February for a year-over-year increase of 3.4 percent, the highest annual gain since April 2009. While it makes sense that wages would rise faster and job growth would plateau as the labor market tightens, some analysts found the jobs numbers puzzling. “You can say this is not consistent with what we’ve seen from earnings,” Tony Roth, CIO of Wilmington Trust, told the Wall Street Journal, calling the headline number anomalous and adding that he expected it to be revised upward.

In a CNBC interview, White House economic advisor Larry Kudlow called the number “very fluky” and urged the public to disregard it. Other economists commented to the network that it might be an aberration caused by one-off events in the labor market, but there are also reasons to expect US economic growth to slow down:

“I don’t think there’s a recession on the horizon. However, the market has to grapple with a slowing economy against the backdrop of a much weaker global environment and therefore questions about the U.S. ability to remain decoupled from the rest of the world will persist,” said Joseph LaVorgna, chief economist for the Americas at Natixis. …

“We had the teacher’s strike, and government employment had a hard time ramping back up so that pulled a lot of things down. There’s a lot of noise in the payroll data,” said Diane Swonk, chief economist at Grant Thornton.

Still other analysts told the Washington Examiner that they weren’t surprised to see the economy pull back after the outsize gains of the previous months. If it does signal a cooling down of the economy this year, that’s not out of line with expectations:

While monthly growth was much lower than the estimated 200,000 from Michael Gapen of Barclays Plc, it bears out his prediction that last year’s growth surge would begin to slow as the impact of 2017’s tax cuts fade. Morgan Stanley’s Ellen Zentner had forecast that the labor market would decelerate even more, with gains of just 141,000. Payrolls “saw a large upside surprise in January,” Zentner said before the report. “We expect some payback in February, where we look for a sharp moderation in employment growth.”

Whether February’s numbers represent a fluke or a trend, and whether or not they are revised upward in the coming months, this report doesn’t change the labor market landscape much for US employers: Supplies of both high-skill and low-skill talent remain tight and many industries continue to face disruption from technological change. Many organizations are now focused on retaining and developing their current employees to build their internal capacity to meet emerging skill requirements, as well as realigning their employee value propositions around the needs and priorities of their most valuable candidates.