Private Sector Job Growth Weak in Feb: Will NFP Report Follow Suit?

• The BLS reports nonfarm payrolls and unemployment numbers for February on Friday.
• It follows a weaker than expected ADP private sector jobs report.
• What to expect from Friday’s jobs report.

Only 77,000 new private sector jobs were added in February, well below expectations.

It is jobs week as the Bureau of Labor Statistics is releasing the nonfarm payroll jobs report and unemployment numbers today.

The BLS jobs report is always highly anticipated by investors, because it’s a key indicator for the strength of the economy and it helps inform the Federal Reserve on interest rates.

With a dual mandate of maximum employment and stable prices, the Fed keeps a close eye on the labor market. When unemployment numbers go up, the Fed is more likely to lower interest rates, as long as inflation does not spike.

For February, economists expect robust results, despite the fact that some 172,000 jobs were slashed in February, according to a report from Challenger, Gray & Christmas.

The consensus among economists calls for 170,000 new jobs in February, which would be up from 143,000 in January. Further, they expect to see the unemployment rate stay at 4.0%, same as January. Wage growth is predicted to tick up 0.3% in February, compared to 0.5% in January, and rise 4.2% year-over-year.

But the question many investors are asking is if these projections will hold up, given the disappointing private sector jobs report that came out on Wednesday?

ADP Report Shows Far Fewer Jobs Created

On Wednesday, ADP released its ADP National Employment Report for February, and the results came in well below expectations.

The private sector added just 77,000 jobs in February, which is the lowest amount since July. It is also about half of what economists expected, as the consensus called for 148,000 new jobs in February. The 77,000 jobs are also a fraction of the 186,000 that were created in January.

“Policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring last month,” Nela Richardson, chief economist at ADP, said. “Our data, combined with other recent indicators, suggests a hiring hesitancy among employers as they assess the economic climate ahead.”

The bulk of the new jobs came from the leisure and hospitality sector, which added 41,000 jobs. Professional business services added 27,000 jobs, while construction and financials each added 26,000. Also, manufacturing added 18,000.

On the other hand, trade, transportation and utilities lost 33,000 jobs, while education and health services dropped 28,000 jobs. Also, the information sector lost 14,000 jobs.

Economists Weigh In

Vanguard is expecting to see 195,000 new jobs created in February, according to Vanguard U.S. Senior Economist Josh Hirt. That is higher than the consensus numbers.

Vanguard also anticipates the unemployment rate staying at 4.0%, and for average hourly wages to increase 4.05% year-over-year.

“While the February nonfarm payroll report is expected to show strong job growth, several factors such as weather disruptions, government layoffs, and immigration policy changes will influence the labor market,” Hirt said.

Hirt added that only a small portion of the government layoffs and buyouts will be reflected in this February report.

As for the impact of the jobs report on the Fed and the trajectory of rates, Hirt doesn’t expect it to move the needle.

“As long as the labor market remains healthy, the Fed can afford to be patient, allowing more data and policy developments to unfold,” Hirt said. “We expect the Fed to adopt a wait-and-see approach until the second half of this year. Inflation expectations and wage growth will be additional governing factors in our view. At the moment, both are maintaining recent ranges and, although they are likely receiving close attention from the Fed, we do not consider them to be worrisome data points at present.”

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