Seasonal Factors May Disrupt Data

Our forecast shows payroll employment rising by 130,000 with private payrolls up 160,000 for February. Government employment is likely to post another decline despite reopening some schools and ramping up vaccination efforts. February is a month that tends to see a seasonal increase of close to 400,000 government sector jobs, which means we have to exceed the seasonal trend to post an actual positive in government employment for the month; that is unlikely.

We expect private-sector employment gains to be dominated by an increase in hiring in the health care sector, which is emerging from the winter surge that sidelined elective procedures in many parts of the country. People are catching up on routine exams and tests that they skipped over the last year. The outliers remain nursing homes and assisted care facilities, which have suffered some of the worst in health outcomes and employment reductions. Vaccinations are reversing that trend but it is unclear how long it will take for demand to return to such facilities, given the casualties they suffered.

Employment at restaurants and bars should pick up, given the lifting of some restraints during the month. The polar vortex and chill that gripped a good part of the country likely dampened some gains. However, the worst of any weather-related disruptions triggered by the polar vortex occurred during the week following the survey for the month. February is historically a month when we tend to hire up in leisure and hospitality as the industry gears up for winter travel and spring breaks, many of which were cancelled earlier in the pandemic. A lot of school districts added onto their winter breaks instead of risking another surge in cases following travel for spring breaks.

Hiring in the retail sector and warehousing and transportation are expected to be stronger. Credit card and debit card data show that spending remained strong in early February with an added boost provided by stimulus checks. Again, disruptions triggered by power outages in the oil patch did not hit until the week after the survey for the month was taken.

Manufacturing and construction activity are likely to be muted. A shortage of semiconductor chips has forced vehicle producers to cut back on production despite strong demand. Construction activity was likely stunted by unusually cold temperatures, but the underlying trend in residential construction remains strong.

The unemployment rate is expected to move up a tick to 6.4%. The increase represents a slight pickup in labor force participation, which plummeted when efforts to contain the spread of the virus and the need to socially distance left many businesses shuttered.

The Federal Reserve has argued that the real unemployment rate is closer to 10%. They are including workers forced to leave the labor force because of the pandemic to care for children learning at home online instead of in school and the dearth of opportunities for low-wage workers. The share of workers classified as absent from work due to COVID, but actually unemployed, has risen again in recent months.

One of the unique features of this crisis is that it has cost jobs at the same time that we have seen pockets where labor markets have actually tightened. Skilled tradespeople in residential construction have been in particularly short supply, which is pushing up wages for those workers. The housing bust and lack of residential construction activity in the wake of the housing bubble left us woefully unprepared for the current surge in housing demand unleashed by record-low mortgage rates and the shift to working from home for higher wage households.

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