U.S. job growth robust before coronavirus outbreak hit shores
U.S. employers maintained a robust pace of hiring in February, giving the economy a strong boost heading into the coronavirus outbreak, which has stoked fears of a recession and prompted an emergency interest rate cut from the Federal Reserve.
The Labor Department’s closely watched monthly employment report on Friday also showed solid wage growth and the unemployment rate falling back to near a 50-year low of 3.5%. Employers also increased hours for workers last month.
But the strong report likely does not capture the impact of the coronavirus, which spread in the United States beginning in late February, leaving financial markets and economists to anticipate severe economic disruptions in the months ahead. Financial markets view the virus, which causes a flu-like illness, as the catalyst that could interrupt the longest economic expansion on record, now in its 11th year.
U.S. Treasury prices rallied, with the yield on the benchmark 10-year government bond dropping to a record low of 0.695% US10YT=RR. The dollar fell against a basket of currencies. Stocks on Wall Street tumbled, with the Dow Jones Industrial average diving more than 800 points at one point.
“Sadly, these job numbers are sure to be eclipsed by response to the spread of the coronavirus,” said Michael Hicks an economist at Ball State University. “The supply shocks from quarantined factories in Asia are weeks away from idling U.S. factories, and the demand-side impact on tourism, travel, eating and drinking establishments is already being felt across the world. The March jobs report, will be far less optimistic.”
Nonfarm payrolls increased by 273,000 jobs last month as unreasonably mild weather continued to boost hiring in weather-sensitive sectors, matching January’s tally, which was the largest gain since May 2018.
While transportation and warehousing payrolls fell by 4,000 jobs in February, suggesting some early impact from the coronavirus, that was erased by strong gains nearly across all sectors, including government. The economy created 85,000 more jobs in December and January than previously reported.
Economists polled had forecast payrolls increasing by 175,000 jobs in February. Employment gains averaged 243,000 per month in the last three months. The economy needs to create roughly 100,000 jobs per month to keep up with growth in the working-age population.
The government canvassed business in mid-February, before the country reported deaths from the virus and rising infections starting in the final week of the month.
At least 14 people have died in the United States from the respiratory disease called COVID-19 caused by the coronavirus and more than 200 have been infected. The disease has spread across 20 states. Overall, the fast-spreading disease has killed over 3,000 people and sickened nearly 100,000, mostly in China.
The highly contagious virus has rattled investors, resulting in the Fed on Tuesday slashing its benchmark overnight interest rate by a half percentage point to a target range of 1.00% to 1.25%. It was the U.S. central bank’s first emergency rate cut since 2008 at the height of the financial crisis.
Fed Chair Jerome Powell acknowledged the economy’s strong fundamentals, but said “the coronavirus poses evolving risks to economic activity.” Financial market are expecting further rates cuts at the Fed’s March 17-18 policy meeting.
FISCAL STIMULUS NEEDED
Economists say fiscal stimulus is needed to cushion the economy against the disruptions from the coronavirus, though many are not yet forecasting a recession. Growth estimates for the first half are around 1%. The economy grew 2.3% in 2019.
Economic turmoil could hurt President Donald Trump who is seeking a second term in office in the Nov. 3 election. White House economic adviser Larry Kudlow said on Friday the government could take targeted measures to stimulate the economy, but added that more information was needed.
While weekly applications for unemployment benefits, the most timely labor market indicator, have so far remained low, economists expect a rise in layoffs if the epidemic persists beyond the second half of this year and into 2021.
“Don’t get too excited about the current condition of the economy, as the past is not likely to be prologue,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania.
Average hourly earnings rose 0.3% in February after gaining 0.2% in January. The annual increase in wages, however, slipped to 3.0% in February from 3.1% in January as last year’s large gain falls out of the calculation.
The average workweek increased to 34.4 hours after holding at 34.3 hours for three straight months.
The jobless rate fell to 3.5% in February. It increased one-tenth of a percentage point to 3.6% in January as more people joined the labor force, in a sign of confidence in the job market. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one was unchanged at 63.4%, the highest since June 2013.
Construction payrolls increased by 42,000 last month after surging 49,000 in January. Manufacturing employment rebounded by 15,000 jobs after falling 20,000 in January. The gains are unlikely sustainable as the coronavirus is fracturing supply chains, and the production of Boeing’s BA.N troubled 737 MAX jetliner remains suspended.
The drop in transportation and warehousing payrolls last month after increasing by 29,800 jobs in January was likely because of travel restrictions enforced by some authorities to curb the spread of the coronavirus.
Traffic at West Coast ports has declined. A report from the Commerce Department on Friday showed the trade deficit dropped 6.7% to $45.3 billion in January as both imports and exports fell.
Government payrolls increased by 45,000 in February, boosted by increases in state government education. About 7,000 temporary workers were hired for the decennial census.
Payrolls in the leisure and hospitality sector surged by 51,000 jobs. Healthcare and social assistance employment increased by 56,500 jobs. There were also increases in hiring in the professional and business services, and financial activities industries. Retail employment, however, fell again in February.