US: Employment Situation


Fri Mar 06 07:30:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Nonfarm Payrolls - M/M change 230,000 200,000 to 252,000 295,000 257,000 239,000
Unemployment Rate - Level 5.6% 5.5% to 5.7% 5.5% 5.7%
Private Payrolls - M/M change 225,000 202,000 to 245,000 288,000 267,000 237,000
Average Hourly Earnings - M/M change 0.2% 0.2% to 0.3% 0.1% 0.5% 0.5%
Av Workweek - All Employees 34.6hrs 34.5hrs to 34.8hrs 34.6hrs 34.6hrs
Participation Rate - level 62.8% 62.9%

Highlights
The labor market is stronger than believed. Payroll jobs increased 295,000 in February after healthy increases of 239,000 in January and 329,000 in December. January and December were revised down a net 18,000. Market expectations for February were for a 230,000 increase.

The unemployment rate dipped to 5.5 percent from 5.7 percent in January. Analysts forecast 5.6 percent. The labor force participation rate edged down marginally to 62.8 percent from 62.9 percent in December.

Turning back to the establishment survey, private payrolls increased 288,000 in February after a 237,000 gain the month before. The median forecast was for 225,000.

Goods-producing jobs increased 29,000 after a 64,000 boost in January. Manufacturing increased 8,000 after rising 21,000 in January. Construction advanced 29,000 in February after gaining 49,000 the month before. Mining declined 9,000 after slipping 6,000 in the month before. The latest numbers indicated that the manufacturing and construction sectors are continuing modest improvement.

Private service-providing industries jumped 259,000 after a gain of 173,000 in January. In February, food services and drinking places added 59,000 jobs. In February, employment in health care rose by 24,000. Transportation and warehousing added 19,000 jobs in February and retail trade gained 22,000 jobs.

Government jobs rose by 7,000 in February after a rise of 2,000 the month before.

Average hourly earnings rose 0.1 percent, compared to 0.5 percent in January. Expectations were for a 0.2 percent gain. The average workweek held steady at 34.6 hours, equaling expectations.

Overall, the latest employment situation suggests the labor market is gradually gaining strength. The odds of a June rate increase by the Fed just went up.


Market Consensus Before Announcement
Nonfarm payroll employment showed payroll jobs gains of 257,000 in January after strong increases of 329,000 in December and 423,000 in November. With the revision, November is the strongest month since May 2010. Private payrolls increased 267,000 in January after a 320,000 boost the month before. The labor force may be tightening a bit as average hourly earnings rebounded 0.5 percent, following a 0.2 percent dip in December. January's increase was the largest in about six years. However, part of the boost in wages was due to increases in some states' minimum wage. The average workweek held steady at 34.6 hours.

The unemployment rate nudged up to 5.7 percent from 5.6 percent in December. The rise was due to a sharp rebound in the labor force. The labor force participation rate rose to 62.9 percent from 62.7 percent in December. It appears that some discouraged workers are returning to the labor force---a positive sign for how workers view the economy. Looking at the broader underemployment measure from the household survey, the U-6 measure edged up to 11.3 percent from 11.2 percent in December.

Definition
The employment situation is a set of labor market indicators based on two separate surveys in this one report. The unemployment rate equals the number of unemployed persons divided by the total number of persons in the labor force, which comes from a survey of 60,000 households (this is called the household survey). Workers are only counted once, no matter how many jobs they have, or whether they are only working part-time. In order to be counted as unemployed, one must be actively looking for work. Other commonly known figures from the Household Survey include the labor supply and discouraged workers.

The Establishment Survey-a survey of over 557,000 worksites- provides additional indicators. Nonfarm payroll employment is the most popular and well-known indicator from this survey. Business establishments in the nonfarm sector report the number of workers currently on their payrolls. Double counting occurs when individuals hold more than one job. Workers on strike during the relevant week are not included in the figures.

Due to sizeable swings in payroll employment during 2010 for hiring and then layoffs of temporary workers for the decentennial Census, analysts started giving essentially equal attention to private nonfarm payrolls as to overall payrolls. This added focus continued even after temporary Census worker issues were no longer a problem as the long-duration recession caused state & local governments to cut their workforce even as the private sector began to rehire during recovery.

The average workweek is a leading indicator of employment. Businesses tend to adjust total hours worked by increasing or decreasing the workweek before hiring someone new or laying someone off. These figures come from the Establishment Survey.

Average hourly earnings are monthly payroll figures reported before deductions for taxes, social insurance and fringe benefits. They include pay for overtime, holidays, vacation and sick leave. These figures come from the Establishment Survey.






Description
If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions can be dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of opponents of easy monetary policy. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.


Importance
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It is comprehensive and available early in the month. Many other economic indicators are dependent upon its information. It not only reveals information about the labor market, but about income and production as well. In short, it provides clues about other economic indicators reported for the month and plays a big role in influencing financial market psychology during the month. Additionally, the Fed has made 6.5 percent unemployment a threshold for considering changes in policy - both for quantitative easing and the fed funds rate. And the Fed has emphasized that it is overall labor market conditions that matter - not just a specific number.

Interpretation
The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.

Nonfarm payroll employment indicates the current level of economic activity. Increases in nonfarm payrolls translate into earnings that workers will spend on goods and services in the economy. The greater the increase in employment, the faster is the total economic growth. When the economy is in the mature phase of an expansion, rapid increases in employment cause fears of inflationary pressures if rapid demand for goods and services cannot be met by current production.

When the average workweek trends up, it supports production gains in the current period and portends additional employment increases. When the average workweek is in a declining mode, it probably is signaling a potential slowdown in employment growth-or even outright declines in employment in case of recession.

Gains in average hourly earnings represent wage pressures. It is worth noting that these figures aren't adjusted for overtime pay or shifts in the composition of the workforce, which affects wages on its own. Market participants believe that a rising trend in hourly earnings will lead to higher inflation. But if increased wages are matched by productivity gains, producers likely will not increase product prices with wages because their unit labor costs are stable.