TRUE ACCELERATION OR FALSE HOPES? JOB PICTURE BRIGHTENS IN FEBRUARY
By Matt Valley
WASHINGTON, D.C. — Economists breathed a collective sigh of relief last Friday morning after the Bureau of Labor Statistics (BLS) reported that U.S. nonfarm payrolls rose by 175,000 in February, beating the average forecast estimate of 149,000, says Bob Bach, director of research for the Americas with Newmark Grubb Knight Frank.
What’s more, the BLS also revised the December and January figures upward by a combined 25,000, which was welcome news considering the tepid job gains in each of those months. Nonfarm payrolls rose by 84,000 in December and 129,000 in January, up 9,000 and 16,000, respectively, from initial estimates.
“February’s report supports the view that we’re not backsliding, but it doesn’t settle the question of whether we’re accelerating,” says Bach. “It will take a couple more months to see if the acceleration is real or another case of false hopes, which we’ve seen multiple times during the recovery.
“I think the bar for success in the labor market has been lowered. Maybe 175,000 jobs [per month] is the new 250,000.”
Old Man Winter Tightens Grip
The U.S. economy has added an average of 129,000 jobs per month during the past three months, based on the revised data from the BLS. That pales in comparison to the 225,000 jobs added on average from September-November 2013.
The harsh winter weather, which has featured an abundance of snow, ice and bitterly cold temperatures across many parts of the country, most notably the Midwest, blunted economic momentum in the short term, many economists believe. And it’s not the only factor.
“Poor weather, inventory adjustment and difficulty in finding qualified employees all have likely had an impact on the job market,” says Ryan Severino, senior economist and associate director of research at Reis. “But these are temporary, not permanent impediments.”
If the weather has been such a drag on the job market, how does one explain that the employment figures in February, a stormy month to be sure, easily surpassed December and January?
“It could likely have been a case where employment was stymied by poor weather, but eventually the need for workers was significant enough that some employers started to hire,” explains Severino. “Interviews that were delayed earlier this winter would have been completed at some point and the hiring process would commence, but on a delayed basis. For example, hiring in state and local government was stronger in February.”
Indeed, the government sector posted a net gain of 13,000 jobs in February after losing 16,000 jobs in January, according to the BLS.
For the commercial real estate industry, there were some notable highlights in the February employment figures.
• The traditional office sectors generally experienced a healthy month, according to Bach. Professional and business services positions increased by 79,000 in February, the sector’s largest increase since February of last year, versus a rise of 42,000 in January. Likewise, the financial activities category added 9,000 positions, the biggest gain since last July.
• However, information dipped by 16,000 positions, due mostly to a sharp decline in motion picture and sound recording.
• Leisure and hospitality added 25,000 jobs in February — the fifth straight month of significant gains — due especially to the accommodation and food services subsector.
• Construction employment rose by 15,000, but that figure was much lower than the gain of 50,000 in January.
• Retail trade remained in the red for the second straight month, dropping 4,100 positions after a decline of 22,600 in January.
• The continued rollout of the Affordable Care Act (ACA) has resulted in both positive and negative changes to healthcare positions, says Bach. Overall, healthcare added 9,500 positions, with physicians largely responsible for the increase. However, hospitals recorded a decline for the third straight month. The strongest subsector overall was outpatient care, which has added positions for 31 straight months.
• Manufacturing employment rose by 6,000 in February, equal to the January figure, but down from each of the last three months of 2013.
Much has been written about how U.S. manufacturing is enjoying a renaissance, yet the job growth figures during the past several months reflect only incremental growth.
“Job creation isn’t the best metric for measuring whether the manufacturing sector is in a renaissance,” emphasizes Bach. “Manufacturing employment peaked in 1979, and manufacturers have been substituting capital for labor ever since, even as industrial production continues to grow at a steady pace. The slide in manufacturing employment has been arrested since 2010, and there have been modest job gains. But the sector won’t be generating big job gains going forward even if it is in a renaissance — which I believe it is to some extent.”
Severino says that it is “bit hyperbolic” to say the manufacturing sector is enjoying a renaissance, at least as far as hiring is concerned.
“Is manufacturing coming back to the U.S.? Yes, to an extent. Is it a panacea for a still-recovering job market? Absolutely not,” says Severino.
The number of healthcare jobs grew by 1.2 percent during the last 12 months, down from the pre-recession peak of 3 percent in September 2007, and tying the lowest level since the BLS began tracking this metric in 1991, according to Bach.
“Hospitals are bearing the brunt of this decline as they consolidate and cut costs in anticipation of lower reimbursement rates and a migration to more cost-effective outpatient services, “ explains Bach. “But other healthcare sectors aren’t adding jobs like they once did either. The long-term prognosis is good (aging boomers plus more insured Americans), but the industry is playing defense as the consequences of the ACA sort themselves out.”
While Severino acknowledges that hospital payrolls are down, he isn’t wholly certain at this juncture whether that’s due to the impact of the ACA.
The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour to 34.2 hours in February, according to the BLS. That’s the lowest level in three years.
“It does seem like the inclement weather has had an acute impact on hours worked,” says Severino. “Poor weather began in December and never looked back.”
The national unemployment rose a modest 10 basis points to 6.7 percent in February as the labor force expanded more than payrolls. The labor force participation rate stood pat at 63 percent during the month and has measured within 20 basis points of this level for seven consecutive months, points out Chris Muoio, senior associate and economist with Auction.com Research.
“Perhaps this will mark the long-awaited bottom in labor participation,” concludes Muoio, “something we have been eagerly anticipating to help drive this recovery further.”