February Employment Report Essentially Solid

The February Employment Report does not stand in the way of a Fed rate hike in March, as it shows a solid labor market.  The weak parts of the report -- Nonfarm Workweek and Average Hourly Earnings -- could have reflected noise.

1.  The larger-than-expected +242k m/m increase in Nonfarm Payrolls underscores Fed officials' comments that the labor market is strong.

      a.   The upside surprise was in Retail Jobs (+55k) and Educational Services (+28k).   Retail jobs were expected to slow in February after seasonal factors had been thought to have exaggerated the January gain.  There still could be some seasonal adjustment problem with them in February, but the uptrend is solid.   Education jobs rebounded 28k after falling 21k in January.

2.  The jobs strength could have been a quick adjustment by companies to the extended use of existing workers in January, as seen in the high 34.6 Hour Average Workweek that month.  I had thought this extended use would persist in February and that we'd seen the hiring reaction in March.

But, with the Workweek falling to 34.4 Hours in February, the suspicion is that both the high January and low February prints reflected noise around a 34.5 Hour trend.  Note that the Manufacturing Workweek -- the best measured of all the sectors -- was steady at 40.8 Hours in February.

3.  The drop in the Workweek is behind the drop in Total Hours Worked.  So, their drop, too, is suspect.

4.  Good weather could have been a factor boosting jobs.  The Number of People Not At Work Because of Bad Weather fell to 228k from 269k in January.  The February level is below trend (250k), while the January level was above trend (225k).

5. The steady 4.9% Unemployment Rate (4.91% versus 4.92% in January, unrounded), confirms labor market strength.  It remained below the 5.0% Q415 average, suggesting continuing above-trend GDP Growth.

6.  The 0.1% m/m decline in Average Hourly Earnings should be viewed cautiously.   To some extent, the softness was expected as a result of the timing of the survey week.  It also could be just a partial unwinding of the +0.5% m/m jump in January.    The 2-month average is +0.2% m/m, the same as the Q415 average.