Friday morning, before the opening bell, the U.S. Labor Department reported that the economy added 20,000 jobs during the month of February, well below expectations for a 180,000 gain. This big miss was partially offset by revisions to the December and January readings, which were revised up to +227,000 from +222,000 and to +311,000 from +304,000, respectively. With these revisions, job gains have now averaged 186,000 over the last three months.
Even though the jobs number came in well below expectations, the unemployment rate declined 0.2 percentage points to 3.8% in February. Meanwhile, the labor force participation rate held steady at 63.2%. A different, broader measure of unemployment and underemployment, known as the U-6 -- which accounts for those working part-time because they are unable to find full-time work -- sharply declined to 7.3% following last month's increase to 8.1%.
In February, average hourly earnings for all employees on nonfarm payrolls increased by $0.11 to $27.66, following a $0.02 gain in January. Over the year, average hourly earnings (i.e., wage inflation) have increased $0.91, or 3.4%, a tick up from the 3.2% annual rate of advance seen in January. However, despite the slight acceleration, we continue to believe the rate of wage inflation on an annual basis to represent a pace that is under control. Remember, this reading is important to the Fed as the central bank uses it as an indicator for future expectations of inflation, and too hot of a number gives the Fed justification to raise interest rates to combat inflation.
It was a mixed bag by sector, with professional and business services, healthcare, and wholesale trade seeing gains in employment of 42,000, 21,000 and 11,000, respectively. Meanwhile, manufacturing employment increased slightly (+4,000), and leisure and hospitality were roughly unchanged after a few big months of job gains. Retail Trade showed little or no change over the month. Construction was a large source of job losses this month as employment declined by 31,000.
The official release is here.
All in all, while we are obviously disappointed with the reading, one month does not make a trend and we believe that a good portion of the reading was impacted by weather conditions in the month of February. That said, we must make our decisions based on what the data is telling us and given this reading, along with horrendous trade data out of China (Trade Balance: $4.12B vs. $26.38B est; Exports YoY: -20.7% vs -4.8% est; Imports YoY: -5.2% vs -1.4% est) and poor monthly German Factory Orders (-2.6 vs. 0.5% est), we would not be surprised to see the bear calls for a recession grow louder.
However, we continue to view the market with a buyers mindset as U.S. businesses continue to show signs of growth, we will therefore continue looking for spots of strength to raise cash (as we did with PayPal (PYPL) this morning) and widen our scales a bit as we leg into positions and redeploy raised funds.