New Payrolls Slow to a Crawl

Payroll employment rose an almost imperceptible 20,000 in February after surging 311,000 in January. Some of the slowdown reflects the return of government workers and contractors back to their day jobs instead of the part- time jobs they took as they tried to make ends meet during the slowdown. Some government workers were counted twice in the January employment report if they took on part-time work to make ends meet before those checks for retroactive pay showed up.

Gains remained solid in professional services and health care. Manufacturing employment weakened, a trend we are likely to see accelerate in response to high profile plant closings by GM in March. Unusually bad weather in parts of the South was a problem as it took a toll on construction and leisure and hospitality employment. There is some concern about continued weakness in the housing market and delays to tax refunds, which likely took a toll on travel and discretionary spending during the month.

Government employment contracted. The shutdown delayed hiring plans by the government, which is seeing a rise in retirees. The U.S. Postal Service is particularly short-staffed, which is noticeable in delivery times. State and local government job losses were concentrated in education. Teacher strikes in Denver added to those losses during the month but will come back in March. Teachers in Oakland and West Virginia also went on strike but after the payroll survey was taken; e.g., they didn’t show up in payroll losses for February.

Average hourly earnings jumped eleven cents during the month, pushing year over year gains to 3.4%. The good news is that low-wage workers are finally earning more. The bad news is that we are not seeing the “trickle up” effect that usually occurs when low wages accelerate. Some large employers have actually raised the wages of their low-wage workers at the expense of managers’ pay. Another caveat is that weekly hours fell during the month, which limited the overall increase in take-home pay associated with those higher hourly wages.

The unemployment rate fell 0.2%, back down to 3.8%. The return of government workers after the shutdown ended helped. The number of workers who were temporarily unemployed dropped by more than 200,000. That is even more than they rose during the height of the shutdown. We saw a large drop - more than 800,000 - in the number of workers seeking part-time work for economic reasons. That is well above the half million forced to take on part-time jobs to make ends meet during the shutdown and suggests that underlying economic conditions are much better than the shortfall in the monthly payroll report suggests.

The participation rate held at 63.2%, which is higher than we have seen in recent years. Young, minority women ages 25-34 continue to drive overall labor force participation. Young minority and/or foreign born women are returning more rapidly than the rest of the labor force. The good news is that the reasons for those who are not participating are improving. White men with less than a high school degree are now opting to care for their families and go back to school instead of retiring or taking disability when they are out of the labor force.

Bottom Line
The headline on the payroll jobs overstates weakness in the labor market. However, it does appear that the pace of job growth is slowing in 2019 relative to 2018. This is to be expected, given the broader slowdown we are experiencing.

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