Saturday, March 8, 2014

"Jobs not chilled in February"- but still things to worry about

A highly-anticipated February U.S. jobs report came out yesterday, as many were wondering if the jobs slowdown that we'd seen in December and January was going to continue with a cold February, and if it meant our recovery was on the verge of slowing down or even heading toward recession.

Looks like those fears could be put to the side for now, as the country added 175,000 seasonally-adjusted jobs in February, and 162,000 in the private sector. December and January were also revised slightly higher, making for a pretty good report at first glance, and even the slight increase in the unemployment rate to 6.7% wasn't that bad, since it reflected 264,000 people going back in the work force, and nearly 800,000 in the last 2 months.

At least that was the line of the corporate-based media, who don't want the cocaine party bull market on Wall Street to come crashing down once this latest bubble pops. But when I looked inside of the report, I found some things that wasn't so pleasing, especially for the consumer-based economy.

The awful weather in the eastern 2/3 of the country was expected to hold down the jobs numbers in February, but a note from the BLS's report can help explain why this didn't happen.
8. How can unusually severe weather affect employment and hours estimates?
In the establishment survey, the reference period is the pay period that includes the 12th of the month. Unusually severe weather is more likely to have an impact on average weekly hours than on employment. Average weekly hours are estimated for paid time during the pay period, including pay for holidays, sick leave, or other time off. The impact of severe weather on hours estimates typically,
but not always, results in a reduction in average weekly hours. For example, some employees may be off work for part of the pay period and not receive pay for the time missed, while some workers, such as those dealing with cleanup or repair, may work extra hours.

In order for severe weather conditions to reduce the estimate of payroll employment, employees have to be off work without pay for the entire pay period. Slightly more than 20 percent of all employees in the payroll survey sample have a weekly pay period. Employees who receive pay for any part of the pay period, even 1 hour, are counted in the payroll employment figures. It is not possible to quantify the effect of extreme weather on estimates of over-the-month change in employment.
So if you were off the job for 1-2 days in a week due to some blizzard or extreme cold, you'll still be listed as having a job, even though you're not getting a full paycheck. Where a weather effect will show up is in the total hours worked and wages earned in a given week, and indeed, this went down quite a bit in February.

Average hours worked, U.S. Feb. 2014
Total Private sector- 34.2 (down 0.1 from Dec. and Jan.)
Construction- 38.0 (down 0.4 from Jan. and 0.7 from Dec.)
Retail trade- 31.0 (down 0.1 from Jan. and 0.3 from Dec.)
Education/ health services- 32.4 (down 0.2 from Jan.)
Leisure and Hospitality- 25.7 (down 0.3 from Jan.)

And this lack of hours worked is reflected in lower wages paid in February. These wages are not adjusted for inflation either.

Average weekly wages, U.S. Feb. 2014
Total Private sector- Up 0.1% from Jan.
Construction- Down 0.3% from Jan., Down 1.0% from Dec.
Retail trade- Up less than 0.1% from Jan., Down 0.1% from Dec.
Education/ health services- Down 0.6% from Jan., Down 0.5% from Dec.
Leisure and Hospitality- Down 0.6% from Jan.

With people earning less money in a number of industries, it's not hard to imagine that retail sales and other consumer spending stayed chilly in February after dropping in both December and January. And retail was the laggard in this February jobs report, down 4,100 overall, with Electronics and Appliance stores down 12,000 (BEFORE Radio Shack announced 1,100 stores were closing). In addition, Sporting Goods stores down 8,600 and Department stores down 6,600.

As I've mentioned before, a lot of this might be the reflection of a structural change where people buy more things online instead of in-person, but with a many retail stores still to close over the next few months (think JC Penney, American TV, etc.), there's not much reason to think the retail sector won't continue to drag on the economy for the first half of 2014.

So while the DC and NY-based media might be breathing a sigh of relief with yesterday's job report, I'm not so sanguine about it. I want to see some evidence of increased pay and consumer sales before I think we're back to the stronger economy we had this Fall.

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