• Non-farm payrolls surprised to the upside again in February, rising 273k positions, matching January’s tally. To top it off the previous two months were revised up 85k. To put this strength in perspective, hiring averaged 178k per month in 2019. Over the past three months it has accelerated to 243k jobs.
  • The unemployment rate mirrored this strong result, falling a tick to 3.5%. The unemployment rate has been oscillating between 3.5-3.6% over the past six months. The participation rate held up at 63.4%, unchanged from January.
  • Private services sector hiring decelerated a bit in February up 167k after a 195k gain in January. Within services, health care gained 32k new positions, and hiring in food services and drinking places defied COVID-19 fears and rose 53k. Professional and technical services hiring was also strong, up 32k, ditto for financial services up 26k.
  • Goods sector hiring picked up in February (+61k vs. 27k prev.), led by a 42k gain in construction. This winter has been a mild one in many parts of the country likely boosting construction hiring. Manufacturing rose 15k, recouping most of January’s 20k loss.
  • Government has been a big part of the strong hiring in recent months, with payrolls there up 45k in February, after a 51k gain in January. And, this is not entirely due to Census-related hiring. Job gains have actually been strongest at the local government level in recent months.
  • Average hourly earnings accelerated in February, up 0.3% on the month, or 3% on a year-on-year basis.

Key Implications

  • Once again, the U.S. labor market defied expectations with another strong hiring tally. You can point to some pulling forward of construction hiring due to the weather, and strength in public sector hiring as being less indicative of economic growth, but even removing these two categories hiring has been stronger over the past three months than through 2019.
  • However, the economic impact of COVID-19 presents a clear risk to hiring in the months ahead (see our recent report). The weakness in financial markets will have real wealth and confidence impacts on the economy, as will reduced spending in the travel and tourism sector. If consumers become even more concerned about community spread and stay home from the movies and restaurants, we would expect a greater hit to spending and hiring.
  • On the plus side, the Fed acted pre-emptively to cushion the impact with its 50 basis point rate cut earlier this week (see here), but as it pointed out, it can only be part of the response. Congress has authorized $8bn in spending on COVID-19 mitigation measures, but more may be required to shore up confidence and spending if the domestic spread worsens.


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