Policymakers and investors should take one last good look at the February U.S. employment data because it effectively represents the end of the multi-year string of strong monthly jobs reports. From here on in, the focus will shift to weekly first-time initial jobless claims and filings for unemployment insurance. The economy generated 273,000 jobs in February that implies the real economy is well positioned to absorb the supply shock that is now affecting the economy.
Rather than looking at hours worked, wages and the composition of job growth, we will now be examining the 13-week moving average of first-time unemployment claims and how long it takes to breach the cyclical five-year average of 242,300, which would imply an imminent increase in the unemployment rate and suggest the business cycle is at risk.
Given the strong probability of another round of rate cuts by the U.S. Federal Reserve, and the need for robust and sustained fiscal action, we are shifting our focus to high-frequency economic data that may reflect damage caused by the supply and demand shocks currently cascading through the global economy.
Meanwhile, top line monthly hiring will be a rear view mirror, lagging real developments in the economy. February notwithstanding, hiring will likely slow going forward, moving back toward 125,000 new jobs per month, the minimum necessary to meet the demands of new entrants into the labor force and to maintain a stable rate of employment. Anything below that will cause unemployment to increase.
So, for old time’s sake, the economy generated 273,000 jobs in February and the unemployment rate declined to 3.5%. Average hourly earnings increased 0.3% on a monthly basis and were up 3% from a year ago. On a three month, average annualized pace wages increased 2.77%, unchanged from January. Aggregate hours worked increased by 0.5% in February, which will support household consumption, which we expect to increase on the month before easing significantly in March and April.
Looking forward we anticipate that there will be a slowing or outright job losses in transportation, leisure, hospitality, education and among the self employed. In February trade and transport lost 13,000 jobs, while leisure and hospitality added 51,000, education and health added 54,000 and the household estimate that includes the self-employed added 45,000 on the month.
It is likely that households will pull back on outlays as a result of the financial volatility that has affected asset prices and due to concerns around large public gatherings and social distancing that will define part of the demand shock that is going to impact the economy.