The February jobs report released by the Bureau of Labor Statistics (BLS) last week, made alarm bells ring and stock futures fall. After 100 months of job growth averaging more than 200,000 jobs per month, February’s report showed anemic gains of only 20,000 new jobs. Here are five reasons we shouldn’t be too concerned just yet, however.
1. The “Headline” Jobs Number is Noisy
As a general rule, we probably pay too much attention to the “headline” jobs number—the monthly change in employment in the Labor Department’s establishment survey. Both when the number is a blockbuster—as it was last month when 311,000 jobs were added—and when it disappoints, as it did in February, observers should remember it is a very noisy series with a confidence interval of plus or minus 115,000 jobs.
To put the alarming 20,000 figure in context, this is the fourth time during the past 101 months of job gains that job growth has been 20,000 or lower. The other three times—January 2011, May 2016, and September 2017—job gains the following month measured 213,000, 282,000, and 260,000.
2. Long-run Trends are Positive
The longer-run trends are highly encouraging. Over the course of 101 months of job growth since October 2010, job gains have accelerated, not slowed. The most recent three-month average of 186,000 is still far higher than the number we need to keep pace with population growth.
3. Unemployment is Stable at Historic Lows
Unemployment has fallen steadily since the recession, and even at 3.8% it still may not have bottomed yet, according to the February jobs report. That’s because employers remain hungry for workers. Evidence from our online employment marketplace suggests that tight labor markets and surging business orders are encouraging employers to take a chance on workers who would otherwise have a relatively high chance of being unemployed.
Over the past year on ZipRecruiter, the share of entry-level job postings that require no prior experience has risen from 10.7% to 14.7%. In the meanwhile, the share of postings requiring high school completion has fallen from 12.7% to 9.6%.
4. Nominal Wage Growth is the Highest it has Been in a Decade
Another encouraging sign is that nominal wages are growing at 3.4%, the fastest rate in almost a decade. With inflation holding fairly steady, below the Fed’s target of 2%, that means workers are seeing real increases in their incomes and purchasing power.
Of course, compensation is more than just wages. In fact, raising wages is often the last thing employers are prepared to do since many are nervous that higher payroll costs will make it more difficult for them to survive the next downturn.
Job postings on ZipRecruiter make it clear that employers are using multiple strategies, in addition to higher wages, to attract and retain workers. That should translate into lower expenses for workers and higher job satisfaction.
Between 2017 and 2018, the number of job postings offering tuition reimbursement rose 96%; those offering flexible schedules rose 110%; those offering store discounts rose 110%; those offering 401k matching rose 120%, and those advertising catered lunches rose 178%.
5. Other Economic Indicators in February Were Strong
One final reason to breathe easy, for now, is that the other economic reports out last week showed a surge in February, not a slump. For example, the Conference Board’s consumer confidence index rebounded to 131.4 in February following a decline to 121.7 in January. Similarly, the MNI Chicago Business Barometer also rose to 64.7 in February, up 8.0 points from January’s 56.7, with new orders surging to a 3-month high.
The service sector also registered strong performance in February. The IHS Markit Services PMI registered the steepest rise in business activity in seven months in Feb (56.0 up from 54.2 in Jan) and highest employment growth in five months. Similarly, even though the employment growth component was a bit weaker, the ISM Non-Manufacturing Index rose to a very healthy 59.7, boosted by big increases in new orders (up to 65.2 from 57.7) and business activity (64.7 from 59.7).
Manufacturing reports were mixed. While the ISM Manufacturing index declined slightly, it still showed new orders, production, and employment expanding, albeit at a slower rate. Meanwhile, the Dallas Fed Manufacturing Outlook Survey’s employment index rebounded to 12.6 in February, up from 6.6 in January, and showed employment growth accelerating, not slowing. Finally, the IHS Markit U.S. Sector PMI showed consumer goods output growth at a nine-month high.
While observers are on the lookout for signs of the next recession, a fluctuation in a noisy series not corroborated by other economic data is not it. Labor market gains are likely to continue for the foreseeable future, buoyed by rapid wage growth, high consumer confidence, and strong consumer demand.
Against that backdrop, businesses are positive about their own firms’ outlook for the coming year and many foresee strong growth. On top of that, after two years of contractionary policies in Canada, Europe, and China, central banks worldwide are hitting the pause button and telling businesses what they want to hear.