March 6, 2020
Executive Summary: US payrolls added 273,000 in February, well ahead of consensus expectations, while the unemployment rate drifted lower to 3.5%. While the data for this report was collected prior to the coronavirus (COVID-19) outbreak spreading further outside of China, it is impressive and shows the momentum the US economy had heading into the COVID-19 period. That momentum should help the US economy power through and skirt a recession, which remains our base case.

Longer-Term Trend

US nonfarm payrolls added 273,000 in February, nearly 100,000 above the consensus expectation of 175,000. Revisions to the prior two months added 85,000 more jobs to the previously reported totals. The December tally was revised up by 37,000 to 184,000 from 147,000, and the January figure was revised up by 48,000 to 273,000 from 225,000. The six-month average jumped higher to 230,700.

Labor Force and Unemployment

The unemployment rate fell 0.1 percentage points to 3.5%, matching the lowest level since December 1969. The all-in unemployment rate (U-6) rose, up 0.1 percentage points to 7.0%, just above its lowest level since the series began in 1994. The labor force lost 60,000 workers, holding the total workforce at 164.6 million. The labor force participation rate also held steady at 63.4%, hovering at the highest level since 2013.

Industry Trends

Service-providing industries added 167,000 workers, while goods producers added 61,000, double its 24-month average. Retail trade was the lone negative segment during February, which is on par with its 24-month average.

On the upside, construction added 42,000, which was more than double its 24-month average of 19,000. Much of this was on the residential housing side. We view this as a likely pull-forward of activity thanks to the milder winter in much of the South and Midwest.

Manufacturing added 15,000 jobs in spite of the Boeing MAX production shutdown, contrary to our expectation. The bulk of the job gains were automotive manufacturers within transportation.

Government added 45,000 workers, which was substantially stronger than expected in February. The majority of the new positions were on the state and local levels. The federal payrolls grew by 8,000, but 7,000 were temporary workers for the 2020 Census.The rest of the industry results were largely in line with their two-year trend.

Wage & Worktime Trends

The average workweek for private employees edged up by 0.1 to 34.4 hours. Average hourly earnings for all employees jumped 9 cents to $28.52, up 3.0% from a year ago, which was a touch slower than the January pace.

The average workweek for production and nonsupervisory workers—representing more than 80% of the US labor force—rose by 0.1 to 33.7 hours. Average hourly earnings for these workers rose 8 cents to $23.96, which is up 3.3% from a year ago. The average workweek in manufacturing also rose, up 0.3 to 40.7 hours, which is an 11-month high, and overtime edged up 0.1 to 3.2 hours.

Bottom Line

The February report was very encouraging, highlighted by back-to-back monthly jobs gains of almost 275,000, a feat not achieved since early 2018 and 2016 before that. It also showed firming wage and worktime data.

That optimism, however, is offset by the COVID-19 outbreak, which has led to the precautionary canceling of events and sweeping non-essential travel bans by many companies in the US and abroad. Indeed, this will be disruptive to the US economy, but the impact should be temporary, based on China’s experience. To wit, production in China is quickly ramping up after being shut down for roughly a month.

Accordingly, our base case is that the momentum in the US should help the economy power through and skirt a recession. Moreover, given ample liquidity, heavier-than-normal levels of cash reserves (savings for consumers) and easing financial conditions, we believe US consumers and companies have the wherewithal to weather the COVID-19 outbreak.

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CN2020-0562 EXP12-2020