Job Creation Slowed in February

February payroll employment is expected to rise by 170,000, a sharp slowdown from January gains. Federal employees and contractors who took side jobs during the government shutdown were also counted in January’s initial report as Congress voted to restore the back pay of furloughed workers. Some were counted as having two jobs as they tried to make up for disruptions to their pay. We could see some weakness in federal employment in February since hiring approvals were delayed while the government was closed.

Private sector payrolls are expected to rise a slower 165,000 in February, reflecting recent manufacturing surveys that show a slowdown in employment. Manufacturers also report that they are hiring fewer new workers because candidates are unable to pass drug tests; they are doing more with the workers they already have. Meanwhile, restructuring in retail is putting a damper on employment gains in that sector as well. We expect to see the strongest gains for the month to remain concentrated in health care and professional services.

The unemployment rate is expected to tick back down to 3.9% as non-essential government workers, who were considered on temporary unemployment, return to their jobs. We should also see a sharp drop in the number of workers reporting they were forced to accept part-time instead of full-time employment during the month. Those figures ballooned by nearly half a million in January as government and contract workers scrambled to make ends meet with part-time jobs during the shutdown. That said, during my last two trips to D.C., I met a number of Uber drivers who were also full-time government employees. The shutdown revealed how many of those workers need to supplement their government paychecks.

Economists at saw a large uptick in job searches by government workers during the shutdown; the level of those looking to leave government has remained elevated since the shutdown ended. More recent data is not available, but what we have suggests that in 2019 we could lose more government workers. We are already seeing a loss of talent at the Departments of State and Treasury.

Average hourly earnings are expected to rise 0.1% in February after jumping 0.3% in January. Year-over-year gains are expected to hold at a 3.4% pace. Almost all of that acceleration has occurred in low-wage jobs as changes in minimum wage rates at the state and local levels work their way through the economy. This has brought more people back into the labor force. Single mothers in the 25-34 year old age group have been driving those gains, which should have positive spillover effects for their children; single parents account for a disproportionate share of households living below the poverty line.

What has been unusual so far during this cycle is the small “trickle up” effects we have seen from those increases in low wage jobs. Usually, firms must pay higher level employees more when the wages of their lowest wage workers rise. Instead, some of the retail behemoths have either cut pay for managers or reduced the number of managers needed to supervise lower wage workers.

Bottom Line
Employment gains are expected to remain solid after posting blockbuster gains in January. Earnings are expected to hold up, welcome news for the Federal Reserve, which has been waiting to see a sustained increase in wages. We are finally getting that, without the previously expected inflation. This is good news for workers.

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