Nonfarm payrolls rose a higher-than-expected 275,000 in February but downward revisions to the two prior months totaled a sharp 167,000. On net, payroll gains in the past three months proved strong even with the lower readings. The monthly average for nonfarm payrolls for the first quarter to-date is 252,000 compared to 212,000 for the fourth quarter 2023. The consensus for February was 190,000 in the Econoday survey of forecasters, though the net revisions suggest that payroll growth was not quite as solid as anticipated.

Private payrolls rose 223,000 in February, reflecting a gain of 19,000 among goods producers and 204,000 among service providers. Strength in goods-producing industries included a 19,000 rise in construction and an 8,000 increase in manufacturing while mining and logging fell 3,000. Among service-providers, payrolls changes were mixed, but generally higher. The largest gain was 90,700 in health care and social assistance, and 58,000 in leisure and hospitality. Government payrolls rose 52,000, with 38,000 in local government.

Average hourly earnings edged up only 0.1 percent on the month; however, year-over-year earnings rose 4.3 percent which is consistent with the trend of the past five months. Gains may have leveled off in recent months but remain solid in a tight labor market.

The unemployment rate rose 2 tenths to 3.9 percent in February, the highest since 4.0 percent in January 2022 and 2 tenths over Econoday's consensus. The U-6 unemployment rate increased 1 tenth to 7.3 percent in February, the highest since December 2021. The slight rise in the two rates shows some further rebalancing in labor supply and demand as the number of unemployed workers rose 334,000 to 6.458 million in February and the number of employed declined 184,000 to 160.968 million. On net, the labor force increased 150,000. The labor force participation rate held flat for a third month in a row at 62.5 percent. If unemployment is a bit higher in February, it remains low in the historical context and consistent with an economy in tempered expansion.

Persons working part time for economic reasons fell 46,000 to 4.376 million in February; job losers rose 188,000 to 3.216 million; and new entrants to the workforce rose 61,000 to 611,000.

A 190,000 rise is the call for nonfarm payroll growth in February versus 353,000 in January which was far above expectations and included a sharp upward revision to December of 333,000. Average hourly earnings in February are expected to rise 0.3 percent on the month for a year-over-year rate of 4.3 percent; these would compare with January's higher-than-expected rates of 0.6 percent on the month and 4.5 percent on the year. February's unemployment rate is expected to hold unchanged at January's 3.7 percent which was lower than expected.

The most closely watched of all economic indicators, the employment situation is a set of monthly labor market indicators based on two separate reports: the establishment survey which tracks 650,000 worksites and offers the nonfarm payroll and average hourly earnings headlines and the household survey which interviews 60,000 households and generates the unemployment rate.

Nonfarm payrolls track the number of part-time and full-time employees in both business and government. Average hourly earnings track employee pay while the average workweek, also part of the establishment survey, tracks the number of hours worked. The report's private payroll measure excludes government workers.

The unemployment rate measures the number of unemployed as a percentage of the labor force. In order to be counted as unemployed, one must be actively looking for work. Other commonly known data from the household survey include the labor supply and discouraged workers.

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.