America’s job creation engine sputtered in February, generating a measly 20k new jobs. That is the softest hiring tally in a year and a half. The slowdown comes after two months of very strong hiring activity in January (+311k) and December (+227K). Job gains over the past three months averaged 186k.

Other details of the report were more positive. The unemployment rate fell back to 3.8%. It had risen to 4% in January due to workers furloughed during the government shutdown.

Another piece of good news was that the participation rate held on to January’s jump up to 63.2%. The rate is up 0.2 percentage points over the past year as a strong labor market draws in a greater share of workers.

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Looking at the payrolls data by industry, the slowdown in hiring was widespread. Both goods (-32k) and services(+57k) sectors were weak, and there isn’t any one industry that stands out as the culprit. Construction shed workers (-31k), manufacturing hiring slowed (+4k), and the retail sector lost jobs (-6k).

There were bright spots in some industries, including professional and business services (+42k), health care (+21k), and wholesale trade (+11k).

Today is international women’s day, and women continue to make gains in the U.S. labor market. The share of women over 16 with a job rose in February to 55.4%, the highest level in over ten years. Looking at women in prime working years, ages 25-54, the employment to population ratio is at 73.4%, above the pre-recession level, and comparable to the level last seen in 2001.

Ending on another positive note, average hourly earnings rose a better-than-expected 0.4% on the month. On a year-on-year basis, wages were up a healthy 3.4% in February, the fastest past in almost ten years.

Key Implications

After January’s blowout job gains, most analysts were expecting a slowdown in hiring, but February’s slowdown was worse than expected. This will likely raise some concerns about momentum in the broader economy, with indicators suggesting that economic growth in the first quarter is running not much better than 1%. However, we are inclined to fade the unexpected weakness in February’s payrolls tally, given the strength we continue to see in other aspects of the report. We have seen hiring tallies of 20k or weaker three times in the past three years. So, while America’s job engine may have sputtered in February, we do not think it has stalled.

We continue to expect the U.S. economy to bounce back in the second quarter. But the overall story for 2019 is one of slowing growth after registering a roughly 3% pace in 2018. February’s hiring slowdown is a reminder that with not much slack left in the labor market, the trend in hiring is expected to slow too going forward. As far as the Fed is concerned, this report reinforces their wait and see stance, which we expect will continue until the second half of this year.

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