March 06, 2020
Wage growth slowed further in February to just 3.0 percent over the last year.
The Bureau of Labor Statistics reported that the economy added 273,000 jobs in February. The January figure was revised up to the same number, which, along with an upward revision to December’s number, brought the three-month average to a very strong 243,000 jobs.
The unemployment rate edged back down to 3.5 percent, reversing the January rise. However, the employment-to-population ratio (EPOP) also edged down 0.1 percentage points from the recovery high reached in January. The EPOP for prime-age workers (ages 25 to 54) also edged down by 0.1 percentage points to 80.5 percent, but it is still 0.6 percentage points above its year-ago level.
In spite of the strong job growth, wage growth continues to weaken. Over the last year, the average hourly wage has risen by just 3.0 percent. The annualized rate for the last three months (December, January, February) compared with the prior three months (September, October, November) was 2.8 percent, suggesting further slowing.
A factor supporting the view that the labor market is weaker than suggested by the unemployment rate is the drop in the share of unemployment due to voluntary quits to 13.4 percent. The year-round average in 2000 was 13.7 percent, with a peak of 15.2 percent.
Other data in the household survey were mixed. There were few major changes in unemployment or employment rates for major demographic groups; although the EPOP for Hispanics rose 0.2 percentage points to 65.1 percent, a new high for the recovery. The duration measures of unemployment all fell slightly.
On the other side, the number of people involuntarily working part-time increased by 136,000 to 4,318,000. This is now slightly above its year-ago level. There was also a modest rise in voluntary part-time employment to 22,175,000.
The share of voluntary part-time employment in total employment had been on a downward path until the Affordable Care Act took full effect in 2014, as people had improved access to health care outside of employment. This was most important for young mothers who opted to work part-time to spend more time with their kids. However, the share seems to be headed downward again in the last two years.
The employment gains in the establishment survey were broadly spread across sectors. Construction had another strong month, adding 42,000 in February after adding 49,000 in January. This was likely in part attributable to unusually warm winter weather in the Northeast and Midwest. Manufacturing added 15,000 jobs, after shedding 20,000 in January. Employment in the sector is up by 31,000 from its year-ago level.
Coal mining was a job loser in February, shedding 500 jobs, which is just under 1.0 percent of employment in the sector. The current number of 50,600 is 300 fewer than when Trump took office.
Health care added 31,600 jobs, close to its average of 30,600 over the last year. There was a big jump of 52,600 in restaurant employment, well above the average of 25,300 over the last year. This is another piece of evidence suggesting weakness in the labor market. In a tight labor market, this low-paying sector should be having trouble finding workers.
The government sector was a big contributor to job growth, adding 45,000 in February after a gain of 51,000 in January. This compares to an average of just 21,800 over the last year.
Professional and technical services added 32,300 jobs in February, somewhat above its average of 23,800 over the last year. Retail lost 7,000 jobs in February, bringing its loss over the last year to 7,800.
While this report can be seen on the whole as positive, given the strong job growth and the sharp upward revisions to the prior two months’ numbers, there is also clear evidence that the labor market is not as tight as it could be. The slowing of wage growth is the most important factor, but the relatively low share of unemployment due to voluntary quits, along with the sharp growth in restaurant employment suggest workers do not have their choice of jobs.
This report is sort of a calm-before-the-storm, since there was no coronavirus effect at the time of the survey in mid-February. On the plus side, this should give the Fed and Congress confidence that they can move forward with stimulatory measures without any fear of overheating the labor market.
