Feb. 2022 Jobs Report
I know it’s difficult to focus on good news right now. We are a watching a democratic nation of approximately 44 million people being pulverized. The worst is likely yet to come. I don’t know about you, but watching the West’s impotence in the face of this is about as frustrating as watching the suffering of the Ukrainian people. Russia is now a petrol-fueled military totalitarian pariah, and it’s having its way. I’m told that economic sanctions have bite, but that bite falls short of the crunch that the Ukrainians are experiencing. Russia has now stooped so low as to attack nuclear facilities. Here’s the good news. At least this didn’t interfere with the Winter Games in China. Now onto the jobs report.
U.S. payroll employment expanded by 678,000 in February. December and January’s payroll employment figures were revised up by a collective 92,000. The unemployment rate inched lower to 3.8%. The nation’s labor force expanded by 304,000 and has now added an astonishing 1.7 million people during 2022’s initial two months. The all-important employment-to-population ratio rose by 0.2 percentage points, reaching its highest level since February 2020, just before COVID reshaped the economy. When it comes to U.S. employment reports, this is about as good as it gets.
We’ve now recovered more than 90% of the 22 million jobs lost during the first two months of the pandemic, and at February’s pace of hiring, we’ll attain complete recovery by May. Two years later and our labor market will have recovered. In terms of GDP, we were recovered about a year ago. For context, it took more than twice as long (51 months) to recover the 8.7 million jobs lost between January 2008 and February 2010.
Here’s the bottom line – Americans are returning to the labor market in large numbers. They are vaccinated. Infections and hospitalizations are way down. They are chasing higher wages. They are in many instances having more difficulty paying bills given that stimulus payments are increasingly in the rearview mirror and inflation is sky-high. The Ukraine/Russia conflict has pushed a number of prices higher, including energy prices. $5/gallon is no longer a rarity. That will serve as further inducement for others to join the labor market party.
While the labor force is almost as large as it was pre-crisis, the labor force participation rate is still a full percentage point lower than its pre-pandemic level. Many Baby Boomers who retired during the public health crisis aren’t coming back. But 2.4 million Americans have returned to the labor force since October. The labor force is only 592,000 short of February 2020 level and will conceivably achieve full recovery over the next few months.
Though the near-term looks benign from a labor market perspective, there are headwinds in the distance. The Federal Reserve is set to tighten monetary policy as it seeks to engineer a “soft landing” for the economy, which Zack (my COO and occasional writer of this newsletter) and others have rightly pointed out is the new “transitory”. Federal spending will be sharply lower this year than in 2020 or in 2021. That’s a fiscal drag. Household spending could begin to wane as Americans are induced into dipping deeper into their savings to pay for basic expenses. Indeed, the household savings rate declined to a multi-year low recently.
As always, you can read my in-depth thoughts regarding the construction industry’s labor market at Associated Builders and Contractors.
Three (Somewhat) Key Takeaways
More than 90% of the labor force gains in February were attributable to people with less than a high school diploma, which should help the industries most constrained by labor shortages. In related news, employment at restaurants and bars increased by 123,700 (+1.1% for the month).
Average hourly wages increased by just $0.1 in February, but I think this has more to do with the statement above. Many lower-wage jobs were added in February, which suppressed the average hourly wages statistic.
Motor vehicle and parts manufacturing lost 18,000 jobs in February. Chalk this one up to computer chip shortages (discussed more in this post), which are likely to persist until at least the end of the year. This is one of the primary implications of the Russian dilemma. The Russians produce key inputs into chip manufacturing.
What to Watch
Will consumer spending begin to buckle in the face of all this inflation and still low consumer confidence?
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