Despite a net increase in total employment of 678,000 and a decline in the unemployment rate to 3.8% in February, the improvement in the American labor market is now in the rearview mirror as the impact of geopolitical tensions, searing economic sanctions, rising inflation and surging oil prices sets in.
The strong February jobs report implies that there is ample room for the Federal Reserve to increase the policy rate by 25 basis points at its meeting on March 16 despite the proliferation of risks to the outlook linked to geopolitical tensions.
Still, it is difficult to make the case that hiring will continue at such a robust pace given the clear economic risks as prices explode through the energy and commodity channels because of the war in Ukraine.
Should that conflict lead to the removal of the 6 million barrels of oil per day that Russia exports—which we think is only days away—from the global markets, with a commensurate surge in oil prices, it is only a matter of time before there is a material change in the pace and composition of hiring in the American labor market. And that will shape the pace and magnitude the Fed’s policy normalization campaign this year.
Beneath the headline
The service sector was the primary impetus for the monthly top-line gain, adding 549,000 jobs, or roughly 81% of the total change in employment. Trade and transport added 103,000 jobs, retail trade 37,000, business services 95,000, education and health 112,000, leisure and hospitality 179,000, and government 24,000. The information sector had no change in total employment.
The household survey continued on its recent surge, adding 548,000 jobs in February following the 1.2 million jobs added in January. The labor force participation rate increased to 62.3% and the employment-to-population ratio did the same, increasing to 59.9%. The median duration of unemployment eased to 9.6 weeks.
In February, 4.2 million people reported that they had been unable to work because their employer closed or lost business because of the pandemic—that is, they did not work at all or worked fewer hours at some point in the four weeks preceding the survey because of the pandemic.
This measure is down from 6.0 million in the previous month. Among those who reported in February that they were unable to work because of pandemic-related closures or lost business, 20.3% received at least some pay from their employer for the hours not worked, down from 23.7% in January.
Among those not in the labor force in February, 1.2 million people were prevented from looking for work because of the pandemic, down from 1.8 million in January.
The overall labor force increased by 304,000, which was the cause of the decline in the unemployment rate. Total weekly hours worked dropped to 34.7, overtime increased to 3.6 hours on the month, and aggregate hours worked increased to 112.7. All of those figures bode well for the consumption outlook, which remains remarkably stout given the increase in inflation.
The takeaway
Robust job growth is likely to continue in the near term. But the proliferation of risks linked to geopolitical tensions of the kind that have not been observed since October 1962 and oil market dynamics not experienced since the 1970s will almost certainly cause hiring to slow materially later this year.
