Friday, March 9, 2012

Thoughts on the Employment Report ...

The Feb. NFP and private payrolls print was more in-line with our estimates than the consensus. NFP came in at 227K versus our 217K and the 210K consensus. Private sector added 233K jobs versus our 235K estimate and the 225K consensus.

A few things stood out in the report. Within the private sector, while professional and business services added 82K jobs in Feb., more than half of those, or 45K, were temporary positions. We touched on this in our March 5th post. What makes this figure even more interesting is that in Feb. '11 only 28% jobs added in this sector were temporary. Historically, increase in temps has been a leading indicator of recoveries or downturns. Whether or not they are indicating an upcoming downturn during the next 6-12 months remains to be seen. They certainly do indicate employers' hesitancy in making that 'commitment' and adding more full-time employees.

The less Y/Y decline in government jobs wasn't surprising, given what we had noticed in the Challenger report, however, we had expected more than a 6K decline. Then again, it is an election year.

Hiring in construction actually declined by 13K, which was surprising to us given the warm winter that we've had this year. The same thing can be said of the 7.4K jobs lost in the retail trade sector.

With these good jobs numbers, the unemployment rate remained at 8.3%, in-line with the consensus. We don't pay much attention to this figure as it depends on the labor force and participation rate, which do change. Basically the base used to come up with the official unemployment rate is questionable. This rate remained unchanged because the participation rate increased by 20bps from Jan., after having decreased steadily from 64.2% in Feb. '11 to 63.7% in Jan., which of course helped make the decline in unemployment rate look so attractive. The U-6 unemployment rate, in our opinion, is a better measure to look at. It declined by 20bps to 14.9%. This level is still very high.

In addition, the average time that people have been unemployed remained very high, 40 weeks. Although this figure has declined from 40.9 weeks in Nov. of last year, it is still well above the Feb. '11 36.7 weeks. Here's another figure that remains alarming: 42.6% of the unemployed have been without jobs for more than 27 weeks, or approx. 6 months. These numbers aren't very impressive given that we are in the third year of recovery from the 'Great Recession'.

Lastly, average weekly hours remained at 34.5 hours, unchanged from Jan. And the hourly earnings change of a mere 0.1% was only half of the 0.2% that the market expected. Average weekly earnings went up by only 0.13%. With lack of much wage growth and latest surge in energy prices, next week's CPI and PPI numbers become even more important, as we mentioned in our last post.

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