February Jobs Report: Two Strong Months in a Row | U.S. MarketFlash

March 10, 2017

Headline: U.S. employers added 235,000 jobs in February, which significantly exceeded market expectations. Wages grew by 6 cents per hour and the trailing 12-month increase jumped to 2.8%. The unemployment rate declined slightly to 4.7%. The labor force participation rate increased to 63%—the highest rate since last March—and January’s job growth number was revised upward to 238,000.
Executive Summary: Positive sentiment is driving job growth. The anticipation of major stimulative policy initiatives by the Trump administration (aka the “Trump Bump”) has taken hold in the stock and bond markets and is now filtering to the job market. Despite the current surge, economists are still split on its sustainability and whether job growth will continue this year and next.
Fed Watch: The Fed has signaled that it is likely to raise rates next week. There is nothing in this report to give them pause.
Job Growth Outlook: While the headline number is encouraging, the growth in wages and the labor participation rate should cheer people the most. Job growth is unlikely to continue at February’s pace without significant increases in the participation rate, but rising wages and even modest increases in people returning to the workforce are good for the economy.
Wage Inflation: Wage growth increased slightly compared with January, up 6 cents from 5 cents, which led to 2.8% annual growth. This is up from January’s 2.5% increase, but still below the 2.9% registered in December. The Fed will look at this number as one of several reasons to tap the brakes next week if it raises interest rates.
Labor Force Participation: The labor force participation rate increased by 0.1 percentage points to 63.0%. The monthly number is volatile, but has remained between 62.4% and 63.0% since August 2013. A move above 63% next month would be a significant change to the labor market and could signal the long-awaited re-entry into the labor force by discouraged workers. The employment-to-population ratio also rose 0.1 percentage points to 60.0% and has started to trend upward after remaining flat for most of 2016.
CRE Implications:
Retail: Retail trade was the only area with significant losses, down by 26,000 jobs. This may be a one-month correction since 40,000 retail jobs were added in January. Considering that 55,000 retail jobs were added in February 2016, the loss of retail jobs this February is of some concern.  
Office: The addition of 37,000 new professional and business services jobs last month is solid for office absorption, but construction, manufacturing and healthcare were the leading drivers of the employment gains. 
Construction Costs: Some specialty construction jobs continue to face labor shortages, so it is good to see that jobs are growing at a solid pace. One area to monitor is job openings in this sector compared with the pace of hiring. If there are a significant number of openings going forward, the tight labor market may limit future growth.
Wild Cards:
Oil: The price of oil continues to skid (now back under $50 a barrel) and this puts at risk some of the increase in both energy and construction jobs.
Services vs. Manufacturing & Construction: The long-term outlook for manufacturing and construction remains clouded by advances in automation. Despite the good jobs report on these fronts, growth in healthcare and other services jobs will be most sustainable.
Immigration: Restrictions on the H-1B visa program (Trump administration suspended expedited service) and possible additional restrictions are causing concern for tech industries in particular. These restrictions could slow job growth and office absorption in tech-heavy markets and have already led some of our clients to consider options in Canada, where immigration policy is more liberal.
Spencer G. Levy 
Head of Research
Americas Research
+1 617 912 5236

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Jeffrey Havsy 
Managing Director 
Americas Research | Econometric Advisors
+1 617 912 5204
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