February Employment Preview

On Friday at 8:30 AM ET, the BLS will release the employment report for February. The consensus is for 148 thousand jobs added, and for the unemployment rate to increase to 6.4%.

Employment Recessions, Scariest Job Chart• First, currently there are still almost 10 million fewer jobs than in February 2020 (before the pandemic).

This graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession is by far the worst recession since WWII in percentage terms, and is still worse than the worst of the “Great Recession”.

ADP Report: The ADP employment report showed a gain of 117,000 private sector jobs, below the consensus estimate of 168 thousand jobs added.  The ADP report hasn’t been very useful in predicting the BLS report, but this suggests the BLS report could be weaker than expected.

ISM Surveys: The ISM® manufacturing employment index increased in February to 54.4%, from 52.6% in January.   This would suggest essentially approximately 5,000 manufacturing jobs added in February. ADP showed 14,000 manufacturing jobs lost.

The ISM® Services employment index decreased in February to 52.7%, from 55.2% in January. This would suggest around 145,000 service jobs added in February. Combined, the ISM surveys suggest around 150,000 private sector jobs added in February. The ISM surveys haven’t been as useful as usual during the pandemic, but this suggests the report could be close to the consensus.

Unemployment Claims: The weekly claims report showed a high number of initial unemployment claims during the reference week (include the 12th of the month), although this might not be very useful right now. If we did a “Rip Van Winkle”, and saw the weekly claims report this morning, we’d think the economy was in a deep recession! In general, weekly claims have been close to expectations.

Weather: Weather is a wildcard every year during the winter. A harsh winter can lead to a weak jobs report, and the weather in February 2021 was especially harsh. However, most of the extreme weather was after the BLS reference week (the major winter storm started on the 13th). After the report is released, the SF Fed will update their Weather-Adjusted Employment Change

Year-over-year change employmentPermanent Job Losers: Something to watch in the employment report will be “Permanent job losers”. While there has been a strong bounce back in total employment, from the shutdown in March and April, permanent job losers had been increasing.

This graph shows permanent job losers as a percent of the pre-recession peak in employment through the December report.

This data is only available back to 1994, so there is only data for three recessions. In January, the number of permanent job losers increased to 3.503 million from 3.370 million in December.

Conclusion: Most of the indicators suggest a stronger report in February than in January (only 49 thousand jobs were added in January). My guess is the report will be close to the consensus (weather is a wildcard).

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