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Employment Sizzles

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Payroll employment surged 678,000 jobs in February, after posting an upwardly revised 481,000 gain in January. The public sector accounted for only 24,000 of those jobs, mostly in education with schools and universities returning to in-person learning as the Omicron wave abated. We still have a long way to go to staff up schools in the wake of the pandemic. Teachers and medical personnel are facing some of the highest levels of burnout.

Gains in the private sector were driven by a jump of 179,000 in the leisure and hospitality sector. Everything from restaurants and bars to hotels and resorts is scrambling to staff up as people return to in-person events in the wake of the Omicron wave. Data by OpenTable showed a sharp rebound in reservations and walk-ins during the month. Hotel room occupancies also jumped.

Gains in professional services and parts of finance remained robust. The largest gains in professional services were in temporary workers as many large consulting firms outsourced to contract workers to make up for acute staffing shortages.

Hiring in health care jumped by 63,500. Most of that was in home health care services. Nursing care facilities posted small gains but remain the most in the hole from the pandemic in the health care sector. More gains are expected as elective surgeries and routine exams delayed by the Omicron wave are recouped. The backlogs are long.

Construction employment was next up, with gains of 60,000 jobs. Most of those were in specialty construction - highly skilled carpenters - in both residential and nonresidential construction. The gain in nonresidential construction is being enhanced by the push to retool offices for a return from working from home and other hybrid work options.

Manufacturing employment rose 36,000. A return of motor vehicle and equipment production, which had been idled due to chip shortages, enhanced those gains. Mining, which reflects some increase in fracking in the oil industry, has increased for a year straight after collapsing in 2020. The bulk of the gains are being driven by smaller shale producers; larger producers are expected to pick up production in the months to come.

Average hourly earnings were essentially unchanged in February after being revised up for January. They rose only 5.1% from a year ago, a slowdown from the pace in January. The slowdown in wage growth is misleading, as it reflects the return of lower wage jobs. Gains for nonsupervisory workers rose 0.3% during the month, which held year-over-year gains at 6.7%. That is stunning.

Target announced additional wage increases, which points to more growth in the months to come. Large, tech-savvy retail behemoths have been setting the floor for wages across the economy.

Average weekly hours rose to 34.7, after being revised up to 34.6 in January. The rise in the average weekly hours we have seen during the pandemic is the first increase in the series in forty years; those increases are amplifying the surge in total earnings and wage costs.

The majority of the rise in weekly hours worked is being driven by a surge in professional services. That is no surprise to those of us in the professional services sector. I have lost a lot of leisure time over the course of the pandemic.

Separately, the unemployment rate fell to 3.8% in February, the lowest level of the pandemic and close to the 3.5% low hit prior to the crisis. Participation in the labor market rose slightly to 62.3% in February but is still a full percentage point below the peak we saw prior to the pandemic in February 2020. The gains in participation were driven by an uptick in participation by men; the participation rate among Black women fell.

Much of the loss in participation can be attributed to retirements, which accelerated with the pandemic and the aging of the baby boom into retirement years. Another portion is due to workers who are now caring for others, including both children and older family members. A shortfall in employment in education, child care and nursing homes has shifted the burden of care onto family members. Women tend to carry that burden more often than men.

The ranks of those working part-time instead of full-time moved up by 418,000 after hitting a record low in January. Multiple job holders fell slightly and remained more than half a million below February 2020 levels. The increase in the number of workers who can now work one instead of multiple jobs took a toll on labor supply, but for the right reasons.

The ranks of workers unable to work due to illness plummeted from a record breaking 3.6 million in January to 1.6 million in February. That is still well above pre-pandemic levels. The path from living in a pandemic to an endemic is littered with potholes. Long COVID and a backlog of illnesses that went unaddressed during the pandemic could add to staffing headaches and further stress our health care systems.

Bottom Line
Hiring continued at a blistering pace in February. The Federal Reserve has taken note. Chairman Jay Powell even referred to the labor market as “overheated” in his testimony on Capitol Hill this week. That begs the question of whether rate hikes that slow the pace of hiring will be enough to derail inflation; the Fed may also have to allow unemployment to rise to boost the supply of workers. The only safety valve would be a surge in immigration; opening our doors to the millions of Ukrainian refugees is not only humane but could alleviate the pressure on the Fed to slam the brakes on hiring.

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