March 4, 2022 Reading Time: 4 minutes

U.S. nonfarm payrolls added 678,000 jobs in February, extending a run of 10 consecutive months and 13 of the last 14 months with gains above 400,000. The average monthly gain over the last 14 months is 564,000 (see first chart).

Private payrolls posted a 654,000 gain in February, the ninth in a row and 12th in the last 14 months above 400,000 (see first chart). The average gain over the last 14 months is 528,000. Both total nonfarm payrolls and private payrolls are less than 1.5 percent below their February 2020 peaks with total nonfarm down by 2.1 million and private payrolls down by 1.4 million (see second chart).

Gains in recent months have been broad-based. Within the 654,000 gain in private payrolls, private services added 549,000 versus a 12-month average of 460,900 while goods-producing industries added 105,000 versus a 12-month average of 62,300.

Within private service-producing industries, leisure and hospitality added 179,000 versus a 12-month average of 181,800 for the month, education and health services increased by 112,000 (versus 52,500), business and professional services added 95,000 (versus 90,600), transportation and warehousing gained 47,600 (versus 36,100), retail employment rose by 36,900 (versus 34,100), and wholesale trade gained 18,300 (versus 13,200; see third chart).

Within the 105,000 gain in goods-producing industries, construction added 60,000, while durable-goods manufacturing increased by 20,000 and nondurable-goods manufacturing added 16,000 and mining and logging industries increased by 9,000 (see third chart).

Despite the strong, broad-based gains over the past year, less than half of the industry groups in the employment report are above their pre-pandemic levels (see fourth chart).

Average hourly earnings were flat in February, putting the 12-month gain at 5.1 percent. However, the average hourly earnings for production and nonsupervisory workers rose 0.3 percent for the month and are up 6.7 percent from a year ago. The average hourly earnings data should be interpreted carefully, as the concentration of job losses and recovery for lower-paying jobs during the pandemic distorts the aggregate number.

The average workweek rose to 34.7 hours in February while the average workweek for production and nonsupervisory workers rose 0.1 hour to 34.1 hours. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls gained 0.8 percent in February and is up 10.8 percent from a year ago while the index for production and nonsupervisory workers rose 1.0 percent and is 12.3 percent above the year ago level.

The total number of officially unemployed was 6.270 million in February. The unemployment rate came in at 3.8 percent while the underemployed rate, referred to as the U-6 rate, was 7.2 percent in February. In February 2020, the unemployment rate was 3.5 percent while the underemployment rate was 7.0 percent (see top of fifth chart).

The employment-to-population ratio, one of AIER’s Roughly Coincident indicators, came in at 59.9 for February still significantly below the 61.2 percent in February 2020 (see bottom of fifth chart).

The better progress on achieving the pre-pandemic unemployment rate is largely due to people dropping out of the labor force. Approximately 592,000 workers are still out of the labor force compared to February 2020 (see sixth chart). The overall participation rate was 62.3 in February versus a participation rate of 63.4 percent in February 2020 (see bottom of fifth and sixth charts).

The February jobs report shows total nonfarm payrolls posted another strong gain. Private payrolls were also strong. However, both remain below pre-pandemic levels as does the civilian labor force. Getting employees back on payrolls should help ease ongoing materials shortages and logistical problems, thereby easing upward pressure on consumer prices.  Slowing consumer spending would also help ease pressures.

Overall, the outlook is for continued recovery. However, even with favorable signs such as stronger payroll growth, upward price pressures are likely to continue for a while longer. Those pressures are leading to a new cycle of Fed policy tightening, raising the risk of a policy mistake.  Furthermore, geopolitical turmoil surrounding the Russian invasion of Ukraine has had a dramatic impact on capital and commodity markets, launching a new wave of potential disruptions to businesses.  The outlook has become highly uncertain and extreme caution is warranted.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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