Manufacturing payrolls lost 4,000 jobs in February, according to Bureau of Labor Statistics data released Friday, the first net reduction the sector has experienced since April 2021 during the depths of the pandemic-induced recession.
The negative figure wasn’t unexpected after nearly six months of declines in new orders and growing finished goods inventories. The soft manufacturing labor data is simply catching up to the slowdown in activity.
Despite the negative manufacturing payroll number, February manufacturing unemployment lowered to 3% from 3.1% in January. This apparent disparity is due to timing lags, meaning the unemployment number may creep upward in subsequent periods.
What may be difficult to reconcile for some is the fact that the manufacturing sector has over 803,000 open job postings while payrolls are declining. This highlights the continued skills gap and lack of workers entering the sector.
Manufacturers continue to work feverishly to retain skilled labor through improved benefits while increasing capital spending to digitize and automate their factories. The labor shortage will remain for years due to structural demographic shifts in the workforce. What’s more, the Federal Reserve Bank of St. Louis estimates that job openings across all sectors exceed available workers by about 4 million—meaning it’s impossible for the economy to fill every position even if every person seeking work became employed.
Labor force participation was up in February, though, with increased participation rates among people between the ages of 16 and 54. The only exception was in ages 55-64, which saw a decline of .1%.
The participation rate also continued to increase among prime aged workers who are 25-54, a welcome sign in an economy that still has 10.8 million job openings. While that figure is down from its peak of 12 million in March 2022, it is still substantially higher than the longer-term average.
The overall economy added 311,000 jobs in February, which is little hotter than the 250,000 expected and higher than the Federal Reserve’s preferred normal increase of 100,000 new positions per month. This potentially complicates the Fed’s job in the coming weeks where it must decide on a quarter-point or half-point rate hike. Most likely, the Fed will wait until it sees the consumer price index data next week before making any decisions.
