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HFF Analysis of the February 2017 BLS Employment Report

Friday, March 10, 2017

HFF is pleased to report on the latest employment expansion statistics from February 2017. Our research team analyzes trends and data to give readers a better view into the current state of the economy and how employment is being affected.

Employment Expansion

U.S. job growth accelerated in February as non-farm payrolls rose by a higher-than-expected 235,000. January figures were revised upwards to 238,000. Wages ticked up to 2.8 percent. Private sector employment (ADP) surged by 298,000 for the month, with good producers adding 106,000. The manufacturing sector saw sold gains last month, with the construction sector adding 58,000 jobs in February, which is the most in 10 years.

Payroll creation has averaged 201,000 since October 2010, marking the 77th month of consecutive growth. The labor force participation rate moved up to 63 percent from 62.9 percent the prior month, the highest level since last March. The unemployment rate fell to 4.7 percent in February. This report is the last major economic report Fed policymakers will view before their meeting next week (March 14-15), raising the odds of a rate hike.

Average Payroll Creation Slowing

The current expansion cycle is similar to 1991 to 2000 and greater than the 2004 to 2007 expansionary period, but only after a significantly delayed recapture of the nation’s previous employment peak.

Average Payroll Creation Since October 2010

The U.S. created 2.16 million jobs in 2016, the smallest gain for a calendar year since 2011. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.

Annual Employment Growth

In 2016, the U.S. created 2.16 million jobs, but nearly 32 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors. Combined, Retail Trade (128,000) and Leisure & Hospitality (306,000) created approximately 434,000 jobs in the year ending February 2017, accounting for some 18 percent of the headline growth nationwide. Retail Trade accounts for 46 percent of the headline Trade, Transportation & Utilities growth. We can therefore assume continued broad-based growth in the retail and industrial property types as we progress deeper into the economic recovery.

Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 597,000 jobs in the year ending February 2017, the highest of any major employment sector. Fortunately, Temporary Staffing only accounted for 91,000 (approximately 15 percent) of these positions. Temporary Staffing is slowing, however, implying hesitance in hiring the lowest cost employees companies can find in tentative expansions.

Education & Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 546,000 jobs in the year ending February 2017. Mining & Logging and Manufacturing continue to undermine headline growth with approximately 30,000 jobs being lost in the year ending February 2017.

YOY change

Unemployment Rate

The Underemployment Rate augments the Unemployment Rate to include anyone marginally attached to the Labor Force that is either not employed or employed only part time. Fortunately, the Underemployment Rate has descending from a recent high of just over 17 percent. However, the spread between the two rates is near an all-time high and shows no sign of rapid compression. The unemployment rate ticked down to 4.7 percent in February and remains historically low. The underemployment rate dropped to 9.2 percent in February.

Unemployment Rate

Wage Growth

As the labor force approaches “full employment”, much attention has been cast to wage growth. The past three recessions were preceded by a period of FOMC tightening. Average hourly earnings growth exceeded four percent in each of these periods as overall economic activity became reflected in strong wage growth. With the current year-over-year percent wage growth registering approximately 2.8 percent, one could argue overall economic activity has not yet reached levels that precede recessionary periods (often accompanied if not triggered by FOMC tightening to counter inflationary forces).

Wage growth

 

Sources: HFF Research, Bureau of Labor Statistics, Department of Labor, Bloomberg

Prepared by:  HFF Research Analyst Morgan Allen





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