February payrolls totaled 311k higher, 85k more than expected, partly offset by a net downward revision of 34k over the past two months. The private sector contributed 265k of these jobs, 50k above the estimate as the government added 46k jobs. The unemployment rate ticked up by 2 tenths to 3.6% as the 177k person increase in the household survey was more than offset by the rise of 419k in the labor force size. The U6 figure was up by 2 tenths too to 6.8%. Job leavers as % of the unemployed was 14.8%, still high but off 15.3% in the month before.
Positively, the participation rate for 25-54 yr olds jumped 4 tenths to 83.1% and is finally back to the Jan/Feb 2020 level. The overall participation rate rose one tenth to 62.5% but still is below the Feb 2020 level of 63.3%. Hours worked slowed to 34.5 vs 34.6 in January and 34.4 in the month before. Average hourly earnings grew by .2% m/o/m, one tenth less than expected and up by 4.6% y/o/y, still almost double the 20 yr average pre covid of 2.5%. Combining the hourly figure and hours worked resulted in no change m/o/m in wage growth but only after a .9% jump in January. Versus last year, they are up 4%.
The service sector added 245k jobs vs 335k in January and 196k in December. Again, leisure and hospitality led the way, hiring a net 105k vs 114k last month and 58k in the month before. Education/health, always consistent, followed with 74k. Jobs added in the ‘professional, business services’ remained consistent too. The tech layoffs showed up in the drop of 25k in ‘Information’, the 3rd month in a row of job losses. Retail added 50k but transportation/warehouse lost 22k.
On the goods side, construction added 24k, likely helped by the mild winter. Manufacturing though shed 4k.
There is one big fly in this report and that is the diffusion index which measures the number of industries that are adding workers and those that are cutting and 50% “indicates an equal balance between industries with increasing and decreasing employment.” In February it fell to 56. That is the lowest since February 2019 not including covid. So the ‘breadth’ of job hiring is moderating and will eventually show up in an aggregate slowdown in hiring.
Bottom line, the spread between ADP and the BLS widened further and I don’t know what to make of ADP anymore. The Treasury market is focused on the lift in the unemployment rate and no surprise with wages and maybe on the comment I just made on the diffusion index. The rate hike odds of 50 bps are now down to 38%. I see no chance they go 50 bps as stated this morning.
Diffusion Index
Participation Rate 25-54 yr olds
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.