Another month of good news on the labor market. The pace of hiring accelerated in February, with non-farm payrolls up 242,000 and revised up for December and January. Civilian employment, an alternative measure of jobs that includes small-business start-ups, rose 530,000 in February. In the past year, payrolls are up 223,000 per month while civilian employment is up 222,000 per month. In other words, both are pointing to an underlying trend just north of 220,000.
Although the unemployment rate remained steady at 4.9 percent, that’s because growth in the labor force is accelerating as well. The labor force expanded 555,000 in February and is up 1.8 million in the past year, the largest increase for any twelve-month period since the end of the recession.
As a result, the participation rate rose to 62.9 percent in February. That’s still very low by historical standards, but, after hitting a post-1977 low of 62.4 percent back in September, the participation rate has increased by the most in any five-month period since the early 1990s. More jobs and an upward trend in “real” (inflation-adjusted) wages appears to be drawing more workers back into the labor force, temporarily offsetting the negative effects of aging Boomers, easily available disability benefits, and overly generous student aid.
Fewer discouraged workers also sent the U-6 version of the unemployment rate lower even as the headline jobless rate remained at 4.9 percent. The U-6 version includes discouraged workers and part-timers who say they want full-time jobs. That peaked at 17.1 percent in 2009–10, was 9.9 percent in January, and dropped to 9.7 percent in February.
However, several of the details in today’s report were not as good as the headlines. Workers’ earnings fell 0.5 percent in February, due to a 0.4 percent drop in total hours worked while average hourly earnings slipped 0.1 percent. The silver lining is that workers’ earnings are still up 3.8 percent in the past year in a relatively low inflation environment, more than enough for boost their purchasing power.
Other negatives in today’s report were an increase in the median duration of unemployment and fewer quitters as a share of the unemployed.
Overall, we think today’s report means the Federal Reserve is still likely to raise rates in the first half of 2016. They’ll probably wait until June, but economic fundamentals justify a rate hike in March. A modest series of rate hikes will not kill economic growth; it will help prevent mal-investment (like in the housing bubble in the prior decade) and future inflation. Either way, look for continued robust job growth in 2016.