By Kevin Lings*
In February 2016, the US unemployment rate remained unchanged at 4.9%, its lowest level since early 2008. This was in-line with market expectations. The US unemployment rate has moved steadily lower from a peak of 10% in late 2009. The labour market participation rate rose again in February 2016 to 62.9% from 62.7% in January, but remains extremely low by historical standards.
Non-farm payrolls rose by a massive 242 000 jobs in February 2016. The market was expecting a gain of around 195 000. The change in total nonfarm payroll employment data for the previous two months was revised up by a total of 30 000 jobs. Obviously, the gain in employment is very impressive, however the rest of the labour market report was less encouraging especially a decline in the hourly work week as well as a month-on-month decline in hourly wages.
The level of US employment is now 5.128 million above the peak prior to the global financial crisis. During the financial market crisis the US lost a total of 8.7 million jobs. Consequently, the US has created more than 13 million jobs since the financial crisis ended. Interestingly, out of these 13 million jobs created, around 6.2 million have been created amongst people aged 55 years and older. In contrast, over the same period the age group 35 to 49 has experienced almost no gain in jobs.
The private sector added an impressive 230 000 jobs in February 2016, after adding a revised 182 000 jobs in January 2016. The private sector has gained employment in each of the past 72 months at an average of 198 000 jobs a month and is at a record high, comfortably surpassing the previous peak in January 2008.
During 2010 as a whole, the US economy created 1 066 000 jobs, or an average of 88 800 jobs per month. In 2011, the job gains averaged a far more respectable 174 000 a month, while in 2012 job gains averaged 179Â 000 a month. In 2013 employment rose by an average of 193Â 000 jobs a month, suggesting that although the labour market was still struggling to gain significant upward momentum, the rate of increase remained encouraging. In 2014 employment rose by a very impressive monthly average of 251 000 jobs, but then slumped somewhat to an average gain of 228 000 in 2015, hurt by the especially weak job reports in March and September 2015.
Key changes in employment per industry during February 2016:
- Health care and social assistance added 57 000 jobs in February. Health care employment increased by 38000 over the month, with job gains in ambulatory health care services (+24000) and hospitals (+11 000). Over the past 12 months, hospitals have added 181 000 jobs. In February, employment rose by 19000 in social assistance, mostly in individual and family services (+14 000).
- Retail trade continued to add jobs in February (+55 000). Employment rose in food and beverage stores (+15 000) and other general merchandise stores (+13 000). Retail trade has added 339 000 jobs over the past 12 months.
- Food services and drinking places added 40 000 jobs in February. Over the year, employment in the industry has grown by 359 000.
- Employment in private educational services rose by 28 000 in February, after edging down by 20 000 in the prior month.
- Construction employment continued to trend up in February (+19 000), with a gain of 14 000 in residential specialty trade contractors. Employment in construction was up by 253 000 over the past 12 months, with residential specialty trade contractors accounting for about half of the increase.
- Employment in mining continued to decline in February (-19 000), with job losses in support activities for mining (-16 000) and coal mining (-2 000). Since a recent peak in September 2014, mining has shed 171 000 jobs, with more than three-fourths of the loss in support activities for mining.
- Employment in other major industries, including manufacturing, wholesale trade, transportation and warehousing, financial activities, professional and business services, and government, showed little change over the month.
In February, average hourly earnings for all employees on private nonfarm payrolls declined by 3 cents to $25.35, following an increase of 12 cents in January. Average hourly earnings have risen by a mere 2.2% over the past year. In February, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $21.32. This rise in earnings is still very modest by historical standards, and below market expectations for the month. Although US wage growth is slowly trending higher, it remains an area of concern for the monetary authorities.
Overall, the rise in US employment report in January 2016 is impressive at the headline level, but a little disappointing at the micro-data level. The fall-off in hours worked as well as the monthly decline in hourly earnings are the biggest concerns. There was also a fairly sharp drop in manufacturing employment.
The latest employment data coupled with improvements in a range of other macro-economic variable during the past couple of weeks will help to ease earlier concerns about a softening of US economic activity. (The slowdown in US activity has been concentrated in exports, a pull-back in oil exploration, declining industrial production and a depletion of business inventory levels). Importantly, the strong growth in US employment coupled with the upward bias in US inflation data (see prior email) will increase the probability that the US Federal Reserve will continue to hike rates in 2016. At this stage our interest rate forecast for the US remains unchanged. We still think the US FOMC is likely to keep interest rates on-hold in the first half of 2016, before hiking rates modestly during the second half of the year.
- Kevin Lings is chief economist at Stanlib
