February Jobs Report: Apocalypse Delayed

The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor Chief Economist Aaron Terrazas.

Two back-to-back anomalies doesn’t make a trend, but it has to raise questions about our assumptions. Today’s jobs report from the U.S. Bureau of Labor Statistics shows the labor market grew faster than expected in February for a second consecutive month, adding 311,000 jobs, though the unemployment rate increased to 3.6 percent. At this point, the torrent of good news can’t help but feel like apocalypse delayed instead of apocalypse now. Today’s data will do little to calm forward-looking C-suite jitters that collapse is just around the corner.

Payroll Employment Growth Slows, but Stays Above Trend

Payroll employment grew by 311,000 in February, slowing from a downward-revised 504,000 in January, but still nearly 100,000 above the downward trend it was on during the second half of 2022. December payroll gains were also revised downward from 260,000 to 239,000.

Industry Softening, Exactly Where You'd Expect It

The information (-25,000) and finance industries (-1,000) posted job losses, as did computer systems and design (-2,400) and advertising (-1,000). These are among the industries most likely to be vulnerable to a rising interest rate environment, and have seen employment trend lower in recent months. Transportation & warehousing (-21,500) also saw payroll declines, led by truck transportation (-8,500) and warehousing and storage (-5,500). February is typically a soft month for transportation hiring as the sector winds down from holiday-related e-commerce and return season. State and local education employment fell (-4,300) as some school districts started to grapple with tax revenue shortfalls from slowing consumer spending.

Leisure & hospitality (+105,000) continued to hire aggressively, particularly in Accommodation & Food Service (+84,300). Healthcare added 44,200 jobs, including 19,400 at Hospitals. Construction employment (+24,000) also continued to grow despite tentative signs of a slowing housing market.

Some of the most recently announced layoffs were likely not captured by the reference week for the February jobs report, so they may trickle through in coming months. Through February, high-profile layoffs and slower hiring remain concentrated in a handful of risk-intensive sectors. Of course, the broader fear is that the data do not yet reflect linkages across the economy lurking just beneath the surface.

Unemployment Rate Increases, but Still Historically Low

The unemployment rate was 3.6 percent in February, increasing by 0.2 percentage points from 3.4 percent in January. The unemployment rate continues to hover just above its lowest level in over five decades. However, the number of recently unemployed – those unemployed for five weeks or less – increased by 343,000 from January, the largest increase in over a year and the third-largest increase since the start of the pandemic.

Wage Growth Reaccelerated

Average hourly earnings held steady at 4.4 percent year-over-year in February 2023, Average hourly earnings accelerated to 4.6 percent year-over-year in February 2023, bucking the slowing trend from the prior month. In the Information sector, which posted net job losses, average hourly earnings increased by 7.1 percent year-over-year, suggesting that layoffs have been concentrated toward entry-level roles.

Conclusion

It’s no longer accurate to say without reservation that the labor market is a bright spot in the economy. From 35,000 feet the picture still looks sterling, but digging an inch beneath the surface, there are clear pockets of softening. Hiring and wage pressure remains the dominant force for many frontline service and skilled vocational roles, but there is growing evidence – not just headlines, but also data – that hiring has eased sharply in risk-intensive sectors.

The challenge that policymakers must navigate is that these risk-intensive sectors are a relatively small part of the economy. Until they’re not. As we saw in the housing and finance sectors in 2008, and as we saw in supply chains in 2020, isolated market disruptions can very quickly spread and amplify during moments of contagion. The labor market has been remarkably resilient as interest rates have moved sharply higher over the past year, but they can’t defy gravity indefinitely. Today’s jobs data pushed out that inevitably yet another month.

More Insights

Payroll growth was marginally higher than expected in February despite decelerating to 311,000 jobs added, reverting more to baseline after 504,000 jobs added in January and more in line with the monthly average of 353,000 from the second half of 2022.

Job gains were driven by service sectors like leisure & hospitality (+105,000), government (+46,000) and health care & social assistance (+62,800) which have been lagging during the recovery. Conversely, some industries that grew quickly during the pandemic are seeing losses now: transportation & warehousing (-21,500) and information (-25,000). Notably, despite being a traditionally rate-sensitive sector, construction continues to add jobs steadily (+24,000).

As we near the 3-year mark since the start of the pandemic in the U.S., leisure & hospitality (-410,000) and government (-376,000) remain the industries with the largest jobs shortfalls vs. pre-pandemic. Below the headline figures, two smaller industries that still have large remaining jobs shortfalls compared to pre-pandemic levels are nursing & residential care facilities (-268,700) and child care services (-59,800).

Average hourly earnings grew 4.6 percent year-over-year, a rise from the previous month in part because we're lapping a period of weakness last February. On a monthly basis, average hourly earnings grew 0.2 percent (2.9 percent annualized), less than expected and consistent with a more recent trend of moderately cooling wage growth.

The unemployment rate rose to 3.6 percent in February, up from 3.4 percent level reached in January which was the lowest rate since 1969.

The labor force participation rate rose to 62.5 percent, the highest rate since March 2020 and getting closer to the pre-pandemic level (63.3 percent). This is all the more impressive considering how many Americans left the workforce as a wave of Baby Boomers reach retirement age.

Prime-age (25-54) labor force participation rose to 83.1 percent, returning to pre-pandemic levels. The recovery in prime-age labor force participation is remarkable given our recent experience with the weak recovery from the Great Recession where it took 13 years to recover.

The Black labor force participation rate rose to 63.4 percent in February, hitting the highest level since 2008, and...

... similarly, the Black employment population ratio rose to 59.8 percent, the highest level since 2001.