the February 2014 Employment Situation

The Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation this morning at 8:30 est.  The report was awaited with some trepidation by economy watchers, who were uncertain how badly the workforce would be hurt by continuing severe weather in many of the most highly populated regions of the country.

The report tuned out to be a very good one, in three respects:

the headline figure was a gain of +175,000 jobs, consisting of an increase of +162,000 positions in the private sector and +13,000 in government (a large gain in state and municipal workers offset by a small reduction in the Federal payroll).  The dividing line between good and bad in ES reports is typically seen to be +150,000 new positions.  That’s the average needed to absorb people finishing school and entering the workforce for the first time.  The  December and January ES had both come in well below that line, leading to worries that the economy was beginning to lose steam.

The February figure looks especially strong, given that winter storms likely subtracted from the jobs total.

revisions to prior months’ figures were positive.  The December ES job gains were revised up by +9,000 positions to +84,000.  The January numbers went up by +16,000 to +139,000.

wage gains were surprisingly strong.  Over the past year, wages have been rising at a +2.2% annual rate, more or less in line with inflation.  The monthly rate of wage gains in February, however, were at a +5.2% annual rate.

This is a good news/bad news figure.  Rising wages means the corporate profits are strong enough for firms to pay more to workers. In other words, the economy is showing a sign of better health.   On the other hand, Sharply rising wages can indicate that all the slack in the workforce has been used up–that the only way a company can add to employees is to headhunt them away from other firms at sharply higher pay.  Great for the workers concerned   …but since inflation in developed economies is all about rising wages it’s also a warning sign that the economy may be overheating.  That would imply higher interest rates are coming from the Fed much sooner than anyone has thought.

Let’s not go overboard, though.  This is only one strong data point that comes after a whole slew pointing in the opposite direction.  It could just be a quirk in the seasonal adjustment the BLS does to the raw data.  And it’s not a good idea to project the future from a single month’s data.  The stock market is taking the correct approach, I think, by taking this number with a grain of salt.

Still, a second strong wage gain figure would start to turn heads.  It would also be in line with my long-held view that much of current US unemployment is structural, not cyclical.  So next month’s ES is going to be important.



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