Unemployment Rate Increased in February
The biggest economic report of the week — the Employment Situation, comprised of nonfarm payrolls and the household survey — is out this morning, with results once again stronger than anticipated: 311K new jobs were filled in February, according to the U.S. Bureau of Labor Statistics (BLS), higher than the 225K consensus estimate. The Unemployment Rate ticked up 20 basis points (bps) to 3.6%, now off 54-year lows.
We did see previous months revised lower, but not by all that much: January’s extraordinary 517K simmers down a bit to 504K, while December’s original 260K now ebbs down to 239K, for a trailing three-month average 351K. This is still illustrative of a robust labor market, as we saw 419K Americans enter the workforce last month; 5.9 million Americans remain unemployed as of this report.
Average Hourly Earnings were still up, but half of what was expected, to +0.2%. This is the lowest read we’ve seen since the unchanged print in February of last year. Year over year, Average Hourly Earnings came in at 4.6%, 20 bps below expectations but higher than the 4.4% reported a month ago. This is a very important aspect of the overall employment report, but its one of the most difficult to assess in real time. For instance, those workers (re-)added to the workforce — were they high-level employees who’ve finally found new work, or were they low wage earners dragging this metric down? Hard to know.
Labor Force Participation reached 62.5%, the best we’ve seen since March 2020 — just before the pandemic hit. This ticks up from 62.4% reported the previous month, and clearly moving in the right direction after several months of stagnating levels. And while we always must consider how improved labor force numbers may be adding to inflation, ticking up towards full employment is ultimately a positive — it further fulfills half of the Fed’s dual mandate and keeps recession talk relatively at bay.
Leisure & Hospitality led the way once again, with 105K hires for the month. This industry was hardest hit during the pandemic, and remains -2.4% below its pre-Covid levels. Retail brought in 50K new positions, while the Government hired 46K and Healthcare had 44K. Transportation was perhaps the biggest laggard here, -21K for the month. Still, even though Leisure & Hospitality once again gained the lion’s share, we’re seeing healthier employment across a wide range of sectors.
It’s tough to see how any of this brings the Fed off the precipice between raising 25 or 50 bps on March 22nd. We’ve heard from Fed Chair Powell and other voting members lately, and we can see that the curbing dot-plot established late last year may need to be scrapped in favor of a tighter Fed funds rate quicker. Should we see a 50 bps hike, this will bring the range to 5.00-5.25% — the highest level we’ve seen since September 2007.
After all this, what may prove to be the real market mover is the collapse of Silicon Valley Bank (SIVB) — now halted from trading after hemorrhaging another -60% in today’s pre-market. For those of us who remember when hundreds of banks were failing in the wake of the financial crisis of a decade and a half ago, its -86% fall just this week is a clear sign that this bank is going under.
That said, this is not your “normal” bank. Silicon Valley itself is a bastion for technological innovation, big on start-up companies with lots of venture capital sloshing around. Pretty clearly mismanagement at the top level is ultimately to blame here, but also the extremely slow IPO market over the past year-plus did the bank no favors. Are there other banks at risk based on this news? Quite possibly. But we do not expect the same level of contagion we saw back in 2008-09.
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