Kevin Cummins

Chief US Economist

Stamford

+1 2038972818

• Big payroll headline but mixed details

• Storms and inclement weather held back gains in February—a plus for March report

• Reported unemployment edged to 6.2% from 6.3%   

The employment data continued to show big monthly impacts due to the pandemic and provided some very fuzzy signals about the state of the labor market. Overall payrolls rose much more than expected in February, up 379,000 (consensus 198,000, NWM -35,000), led by a 355,000 rebound in the leisure and hospitality series as COVID-related restrictions eased in some parts of the country.  Meanwhile, the unemployment rate slipped from 6.3% to 6.2% in February, as employment rose 208,000 while the labor force edged up just 50,000. However, when factoring in workers who have left the labor force since the start of COVID, as well as misclassification errors, the unemployment rate is closer to ~10% (more below).

The rebound in leisure and hospitality payrolls reversed two-thirds of the drop in December (-498,000) and January (-25,000), and now leaves the level down "only" 20.4% from last February's level. With additional areas loosening some of the renewed restrictions put back in pace at the turn of the year, we should see in-person services recover even more in coming months. Meanwhile, other industries were mostly flat on balance in February (see chart), partly depressed by February winter storms and colder temperatures. Nonfarm payrolls remain nearly 9.5 million below their peak last February, which represents a decline of 6.2% y/y.  Even with the large gain in February, nonfarm payrolls in this morning’s report were roughly equal to their level in late 2015 – still more than five years ago. 

Even with February bounce, payrolls have a long way to go from being recovered. In level terms, overall payrolls were down 9.475 million in February (troughed at -22.362 million in Apr 2020 vs Feb 2020 peak); ex leisure and hospitality -6.024 mil (troughed at -14.138 in Apr 2020 vs Feb 2020 peak); and leisure and hospitality -3.451 mil (troughed at -8.224 mil in Apr 2020 vs Feb 2020 peak). Source: Bureau of Labor Statistics, NatWest Markets

 

In percentage terms, overall payrolls were down 6.2% y/y in February (troughed at -14.7% in Apr 2020 vs Feb 2020 peak); ex leisure and hospitality -4.4% y/y (troughed at -10.4% in Apr 2020 vs Feb 2020 peak); and leisure and hospitality -20.4% y/y (troughed at -48.6% in Apr 2020 vs Feb 2020 peak).   Source: Bureau of Labor Statistics, NatWest Markets

Payrolls Growth by Super Sector (000s)
Super sector	12MMA	6MMA	3MMA	Dec- 20	Jan- 20	Feb- 21
Total Nonfarm Payrolls	-790	317	80	-306	166	379
Total private	-674	421	94	-274	90	465
Mining and logging	-8	0	-3	0	0	-8
Construction	-26	20	-4	47	1	-61
Manufacturing	-47	28	14	35	-14	21
Wholesale trade	-22	15	11	15	14	4
Retail trade	-30	42	39	30	46	41
Transportation & warehousing	-14	31	-18	-43	-14	4
Utilities	-1	0	0	-1	1	0
Information	-21	8	5	9	10	-3
Financial activities	-9	16	5	18	1	-5
Professional & business services	-64	131	102	159	85	63
Education	-32	-12	0	-67	70	-2
Health services	-76	42	-4	39	-96	46
Leisure & hospitality	-288	84	-56	-498	-25	355
Other services	-37	17	2	-16	12	10
Government	-116	-105	-14	-32	76	-86

  Source: BLS, Natwest Markets  

February payrolls and hours worked were probably lowered by snow storms and by a swing toward colder than usual temperatures. Indeed, it looks like weather played a sizable role despite the impressive gain, construction payrolls fell 61,000 and the workweek fully reversed the prior month's increase, to 34.6 in February from 34.9 in January and 34.7 in December. Hours in the construction sector was down a sharp 1.1pt to 38.2 hours.   

If not for the winter storms which hit during the employment survey reference week (and carried over throughout much of the month), payrolls would have been stronger last month. In February, temperatures were 5.1 degrees (Fahrenheit) below normal after having been 1.1 degrees above normal in November.   Source: National Climatic Data Center, Haver Analytics, and NatWest Markets

    

We estimate that in the past Februarys, a 6.9 degree swing in the deviations from normal temperatures (as this year) has been associated—very roughly—with about a 20,000 drag on private payrolls.   Source: National Climatic Data Center, Haver Analytics, and NatWest Markets

  

Household survey data on those not at work because of bad weather showed a not seasonally adjusted surge of 721,000 between January and February; the 10-year average swing was -85,000. We do not take the 769,000 difference as a literal indicator of the impact on payrolls, especially given the abnormal conditions in the labor market during COVID, but it does appear consistent with a significant drag on jobs in February, and implies a decent rebound in several areas as weather starts to return toward more normal seasonal trends.   

  

Non-agricultural workers not at work due to bad weather Source: BLS and NatWest Markets
Monthly change (000s)	Nov	Dec	Jan	Feb	Mar	Apr
2009-10	-15	151	18	772	-896	-107
2010-11	3	139	707	-491	-244	-89
2011-12	19	67	79	-28	-82	-45
2012-13	347	-285	148	5	-120	-21
2013-14	7	236	-11	339	-453	-85
2014-15	121	-5	53	127	-146	-81
2015-16	68	28	144	-41	-36	-147
2016-17	-219	140	236	-238	7	-83
2017-18	48	36	376	-237	-100	-26
2018-19	-69	58	78	125	-253	-59
2019-20	66	14	114	-36	-47	-108
2020-21	29	51	65	721
10-yr avg	39	43	192	-48	-147	-74

 
Other secondary indicators in the establishment survey were mostly as we expected. Average hourly earnings rose two-tenths of a percent, and January was revised down to 0.1% (from 0.2%),  which left the year-over-year growth rate at an exaggerated 5.3%.      

Average Hourly Earnings Source: Bureau of Labor Statistics, NatWest Markets

All Employees AHE ($) AHE (m/m%) Annualized change Super sector Feb-21 Dec-20 Jan-21 Feb-21 3 month 6 month 12 month Total private 30.01 1.0% 0.1% 0.2% 5.5% 3.7% 5.3% Mining and logging 34.84 0.6% 0.1% 0.4% 4.4% 0.2% 1.2% Construction 32.33 0.4% 0.4% 0.3% 4.6% 3.2% 3.1% Manufacturing 29.06 0.0% 0.3% -0.1% 1.0% 0.8% 2.9% Wholesale trade 33.12 0.3% 0.3% 0.5% 4.5% 3.9% 4.1% Retail trade 21.23 0.9% 0.1% -0.6% 1.5% 0.4% 5.2% Transportation and warehousing 25.72 0.9% -0.3% 0.3% 3.8% 2.5% 2.7% Utilities 44.09 -0.5% 0.2% -0.3% -2.5% 0.0% 3.9% Information 44.77 -0.3% 0.4% 0.7% 3.4% 3.5% 4.2% Financial activities 39.73 0.7% 0.5% 1.2% 10.1% 8.7% 7.8% Professional and business services 35.88 0.4% 0.4% 0.4% 5.1% 3.4% 4.2% Education and health services 29.27 2.0% -0.5% -0.1% 5.8% 4.4% 4.9% Leisure and hospitality 17.28 0.4% 0.3% 0.4% 4.5% 2.6% 2.2% Other services 27.10 0.6% 0.3% 0.7% 6.3% 3.9% 5.9% Source: BLS,  NatWest Markets:   Note: Monthly Contribution may not add up precisely due to rounding

  

Unemployment Rate. The unemployment rate slipped a tenth of a percent, but the improvement was concentrated in the volatile youth categories. By race, the overall black unemployment jumped back up to 9.9% from 9.2% in January, while the jobless rate for both whites (5.6%) and Hispanics (8.5%) were down a tick. Asian unemployment sank to 5.1% from 6.6%. On a more positive note, the composition of unemployment by reason for joblessness improved a bit – the number of unemployed workers who had lost their jobs declined, which is consistent with the modest down trend in jobless claims, while the number of new entrants climbed a little. (The compositional data are volatile on a month-to-month basis, so we wouldn't read too much into monthly movements, but the same is true for the age distribution data. This may all be noise, but the point is that there was some slightly positive noise to go along with the negative noise.)  

Other household survey numbers were generally positive. As expected, the labor force participation rate was flat at 61.4%, aided by the increase in new entrants. The broad U6 unemployment rate was steady after falling in each of the prior nine months. The overall unemployment rate is down just 0.5% over the past two months, and the U6 rate is down 0.6% over the same period. Despite the drop, there is still an enormous amount of excess slack in joblessness.

The official reported unemployment rate (6.2%) is very misleading and clearly understates the current level of unemployed, as the real unemployment rate is much higher if you include people that have left the labor force.  As mentioned at 61.4% the labor force participation rate was steady on the month but still almost down two percentage points from where it was heading in COVID (63.3% in February 2020). With many new jobless people not included because they have not actively started searching for a new job yet, the official jobless rate is understated. All else equal, every one-point decline in the participation rate reduces the unemployment rate by around 1 1/2 points or so, so that a rough 2-point net decline in the participation rate is worth three points on the unemployment rate. Adjusting for that impact, as well as the misclassification issue (see the BLS quote below), the overall unemployment rate (U3) may be as high as 9.7% in February 2021 versus only 3.5% in February 2020, so while today's drop is a small positive joblessness remains extremely high. 

According to the BLS Commissioner, "As in previous months, some workers affected by the pandemic who should have been classified as unemployed on temporary layoff in February were instead misclassified as employed but not at work. Since March 2020, BLS has published an estimate of what the unemployment rate would have been had misclassified workers been included among the unemployed. Repeating this same approach, the seasonally adjusted February unemployment rate would have been 0.5 percentage point higher than reported.”   

Unemployment Rate Source: Bureau of Labor Statistics, NatWest Markets

    

Employment Situation
Seas. Adj.	Oct	Nov	Dec	Jan	Feb
Nonfarm Payroll Survey
Employment (chg, thous.)	+680	+264	-306	+166	+379
Private Sector (chg, thous.)	+954	+359	-274	+90	+465
Workweek, Private	34.8	34.8	34.7	34.9	34.6
Workweek, Manufacturing	40.4	40.3	40	40.4	40.2
Aggregate hours, Priv (% chg)	+0.8	+0.3	-0.5	+0.7	-0.5
Aggregate Hours, Mfg (% chg)	+0.5	+0.1	-0.5	+0.9	-0.3
Avg Hourly Earnings, Priv (% chg)	+0.1	+0.3	+1.0	+0.1	+0.2
Household Survey
Unemployment Rate (%)	6.9	6.7	6.7	6.3	6.2
Employment (chg, thous.)	+2126	+140	+21	+201	+208
Labor Force (chg, thous.)	+640	-182	+31	-406	+50
Source:  BLS

Thanks to Deepika Dayal and Garima Ahuja for their contribution to this publication.

  

---

Please click here to find all of NatWest Markets’ Strategy and Sales commentary/ideas.

You can also find out more about our electronic offering and credentials for Rates here and for FX here.

---

Invitation to consider a derivatives transaction

This communication is prepared by the sales and trading desk or desk strategists and is marketing material, desk strategy and/or trader commentary. It does not constitute research. This material constitutes an invitation to consider entering into a derivatives transaction under U.S. CFTC Regulations 1.71 and 23.605, where applicable, but is not a binding offer to buy/sell any financial instrument. The views of the author may differ from others at NatWest Markets Plc, NatWest Markets N.V. and/or NatWest Markets Securities Inc. (collectively “NatWest Markets”).

---