Friday, March 8, 2013

February Employment Report

The headlines from the February Employment Report contained some better than expected news about the job market: the unemployment rate fell to 7.7% (from 7.9%) and the economy added 236,000 jobs (246,000 in the private sector.  Let's look at some of the details.  The February numbers look quite good, but should be interpreted along with somewhat weaker numbers for January to assess the trend.  For example, though the private sector added 246,000 jobs in February, it added 140,000 in January, which averages 193,000 per month so far in 2013.  Looking at particular sectors, construction has added 140,000 jobs over the past year, a majority of those in the last 2 months (+73,000 in 2013).  To empahsize the significance of the pickup in construction, it added about 8,000 jobs per month, on average, in 2012, but is averaging more than 36,000 per month so far in 2013.  Other sectors and industries showing significant gains include retail trade, food accomodations, and health care.  One industry that you may not have expected to make a significant contribution, motion picture and sound recording industries, added nearly 21,000 jobs in February.

Why  did the unemployment rate fall?  A combination of more people employed and fewer people in the labor force.  The participation rate declined back to a 30-year low of 63.5% (the last time it was lower was in 1979).  Meanwhile, the employment-population ratio remained at 58.6%, unchanged so far in 2013 as well as from February 2012, but up from the post-recession low of 58.2% in November 2010 and still considerably below it's pre-recession high of 62.9% in November 2007.

What are the key takeaways from the report?  The job market has gotten off to a pretty good start in 2013, led by the rebound in construction.  That said, the employment gains in February were across the board, not concentrated in one sector.  Given the weakness in January, the job market is not signaling a robust economy, but an economy that continues to move forward.  In the coming months, there will be a battle between the rebounding housing market as seen in rising employment in construction and the fiscal drag due to the increase in the payroll tax and sequestration.