The January-to-February increase of 275,000 in the number of persons employed on non-farm payrolls, including the government and private sectors, created quite a stir in the media, owing to the fact it was above a consensus estimate and above the 230,000 average for the last 12 months. The words “robust” and “swelled” were among the adjectives used in some media releases.
Job increases from January to February occurred in health care (67,000), government (52,000), food services and drinking places (42,000), social assistance (24,000), construction (23,000), transportation and warehousing (20,000), and other areas. The above accounts for 228,000 out of the total 275,000 jobs added in February.
In Context
The rate of growth is the slowest in just under three years
The increase in the number of people employed was eye-catching, but the underlying trend tells a slightly less robust story. The year-over-year growth rate in the monthly data (1/12) is 1.8%, the slowest rate of rise in just under three years. The 12MMT is at a record high 157.808 million people working, but here the rate of growth (12/12) has slowed to 2.1%, the mildest growth rate in just over two years. From another perspective, the January-to-February increase of 0.17% is about average, but the mildest since 2019. The decelerating rise may catch the attention of the Federal Reserve Board, which could weigh favorably in terms of a decline in the federal funds rate.
The unemployment rate increased to 4.1%
An increase in the unemployment rate may help inform the Fed’s decision to lower interest rates, though it seems likely that they will want to see the unemployment rate move higher over the next few months. The 4.1% rate is a full percentage point higher than the April 2023 low of 3.1%.
The number of unemployed people rose by 334,000
The fact that 334,000 people joined the ranks of the unemployed (using a seasonally adjusted number reported by the Bureau of Labor Statistics) may be another factor for the Fed to consider when deciding about when to lower the federal funds rate.
The number of unemployed has risen to 6.5 million people as of February. The number of unemployed in February 2020 (just before COVID hit) was 6.075 million. There are more people working now than there were in February 2020, but there are also more people unemployed.
Wages
US Total Private Workforce Average Hourly Earnings is a broad measure of the hourly rate. ITR Economics also measures the year-over-year increase through time to determine if the wage pressures are more inflationary or deflationary. This indicator shows that wages in February were at a record high and 4.3% above the year-ago figure (1/12). Disinflation (the slowing in the rate of rise) was in place through December, but the earnings year-over-year growth rate has marginally improved over the last two months. Some industries, such as wholesale trade, are seeing a greater tendency for disinflation (a slowing in the rate of rise in wages), while others (such as manufacturing) are seeing increased inflationary pressures on wages. Budgeting for labor costs through the rest of 2024 and into 2025 requires an analysis of your particular industry. Reach out to us at itr@itreconomics.com if you would like more information.
We do not expect significant layoffs, and we do not expect a welcomed influx of potential new workers as they shift from one company or industry to another. We expect that wage inflation will, to varying degrees, be a part of the economic landscape through the rest of the decade.
