- February’s employment report was overall positive with a gain in non-farm payrolls of 227K in February and net revisions to January and December added another 61K. The unemployment rate was steady at 8.3% despite a major gain in household employment.
- Details showed another good month for manufacturing employment and business services while construction employment declined due to some payback from the warm winter. This might continue in March as the “not at work due to warm weather” tally is still well below its average for the month.
- One weak spot is the continued modest gain in hourly earnings, which is suppressing overall income growth. Our income growth proxy lies at 4.6% annualised, which should be enough to keep consumption growth at around 2.5%. Details
Overall non-farm payrolls rose by 227K in February and private employment gained 233K. Net revisions to January and December added another 61K. February was another good month for manufacturing employment rising 31K versus 52K in January. There was some payback in construction employment (-13K) following the boost due to the mild winter weather. In service employment retail trade was weak (-7K), business services strong (+82K) and education and health also strong at +71K up from +37K. Government employment continues to contract -7K.
In the establishment survey, household employment jumped 428K following a major increase in January but a corresponding increase in the labour force (up 476K) kept the unemployment rate unchanged at 8.3%. Also worth noting is that the "not at work due to bad weather" tally is well below its average for February, suggesting that favourable weather conditions were a positive contribution to February’s employment figures. Hencewe could see some reversal in March.
One negative is the continued weak increase in hourly earnings, up a minor 0.1% m/m, which is keeping a lid on income growth. Despite the modest increase in hourly earnings our payrolls income proxy is holding up and points to income growth of 4.6% annualised.
This should be enough to keep private consumption at around 2.5% in 2012.
Assessment and outlook The labour market seems to be on the right track and this is likely to be acknowledged by the Fed at the FOMC meeting next week. However, we do not expect that the Committee is ready to signal anything new in the forward-looking part of the statement and the door to additional QE will be kept open. The likelihood of another round of QE is, however,declining and should the current trend in employment continue, the Fed is unlikely to add further fuel to the economy.
