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Few Signs of COVID-19 in February Jobs Report

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Payroll employment is expected to rise by 140,000 in February after surging 225,0000 in January. A return of seasonable weather, the spillover effects triggered by cuts to Boeing’s 737 Max production and the first signs of weakness associated with COVID-19 are all expected to have put a damper on employment in February. The return of construction employment to typical seasonal levels could shave more than 40,000 jobs off the total for the month.

Increases in health care and professional services are expected to be tempered by losses in retail, mining and manufacturing. Retail store closings picked up in February as the shift from bricks to clicks intensified. The oil sector continued to restructure on the heels of lower prices while manufacturing suffered a two-pronged attack from the spillover effects of cuts in production of Boeing's 737 Max and COVID-19. Supply chain disruptions were particularly hard on the electronics sector. We saw layoffs at some of the busiest ports for imports from China and in the transportation sector during the month.

The question mark is leisure and hospitality. Visa recently warned of a significant blow to profits from reduced travel and tourism to and from Asia. Chinese tourists, who are some of the wealthiest in the world, are now absent from major tourist destinations. Much of that weakness is yet to come. The ISM for the services sector suggests it held up well in February, despite the start of conference cancellations and curbs to travel by major firms.

The only upside surprise in the February report could be Census hires, which are beginning to pick up again. The jump in employment tied to the 2020 Census is expected to be much smaller than we saw in 2010 and not hit until Spring. The number of regional Census offices has dropped to about half of what we had in 2010 as the Commerce Department leverages technology to check addresses. Hiring for the Census played a key role in masking some of the pain associated with the downturn back in 2009.

Average hourly earnings are expected to rise 0.2% in February, while year-over-year gains should slow to a 2.9% pace. That will mark the weakest year-over-year rise in wages growth since July 2018. Strong wage gains a year ago make year-over-year comparisons difficult. The acceleration in wages hit a 3.5% pace in February of 2019. That is a peak for the cycle thus far. The Federal Reserve has already cut rates in response to the downside risks associated with COVID-19. We expect to see another 50 basis-point cut by June.

The unemployment rate is likely to hold at 3.6%. Participation in the labor force should hold at the highs hit in January. We expect to see the unemployment rate edge up in the months to come as the slowdown in growth triggers a pickup in layoffs.

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