Markets & Finance

Jobs Growth Still Catching Up


The Mar. 10 release of the government's employment data for February will likely extend the string of solid post-hurricane reports. The release should reveal a solid gain in the nonfarm payrolls figure in February, with the usual pattern of big upward payroll revisions to prior months, and strength in other major components of the report.

We at Action Economics expect payrolls to rise 220,000 in February, which would modestly outpace the 200,000 median estimate of economists. The payroll figures are still playing "catch up" following job losses in the aftermath of last year's hurricanes, and each month is at risk of an upside pop.

Additionally, the February report has the extra five-week survey period -- compared with the more usual four-week survey period. Historically, this has provided some additional upside to the "as-reported" figure, in a month that historically tends to outperform the median anyway.

BOUNCING BACK. Other labor market indicators have remained strong, if not robust. The weekly initial jobless claims data continue to hover at the lowest levels since April, 2000, and have averaged an incredibly lean 288,000 in February, following a 284,000 average reading in January. This is well below the already-low 318,000 December average. While it was surprising that we did not see a larger payroll gain in January given the sharp drop in initial claims, the risk is that both months will reveal hefty gains once the revision dust settles.

Continuing claims have also followed suit, with a level of 2,486,000 for the week ended Feb. 18 (the most recent figure available), which remains at the low for this expansion.

Other data reports also point to job-market strength in February. Employment indicators in the Institute for Supply Management's surveys for both manufacturing and nonmanufacturing sectors revealed a sharp jump in February. The ISM manufacturing employment component jumped to 55 from 51.3, while the ISM non-manufacturing figure surged to 58.2 from 51.1. The data sit at historically robust levels and support another strong payroll gain this month.

The Hudson employment index was also robust in February, with a 5.6 surge to a 108.2 reading. This index fell with other employment market indicators in response to the August and September hurricane jolt, but has since roared back aggressively, with a particularly large jump this month.

SURPRISING STRENGTH. A surprising deterioration in consumer sentiment data in February, however, has capped some of the upside risk to payrolls in February. The current series of University of Michigan's consumer sentiment survey fell to 105.6 in February from 110.3 in January, while the implied "job strength" index from the Conference Board's consumer confidence report moderated to +6.6 from +6.7. The readings are still solid, but not as strong as those seen in January.

The January report extended the trend of big upward revisions to prior payroll gains. The advanced (initially reported) payrolls figure has been revised up by an average of 46,000 over the last six months, and the revisions show an upward trend since mid-2005.

There has been a fairly predictable pattern over the last two years of oscillating payroll swings around median forecasts, as swings each month tend to correct for prior surprises, while cautiousness is evident in market estimates following each big forecast error. December and January both surprised to the downside. This, along with lingering hurricane-disruption catch-up, suggests that we might see surprising strength in February, as shell-shocked economists from the last payroll report refrain from forecasting a big payroll gain this time around, despite upside risks.

In total, there is good reason to expect another solid employment report for February. In fact, the biggest risk appears to be a repeat of the the pattern in prior reports of big upward back-revisions, and robust component data.


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