February Employment Situation and January Trade Deficit

KEY DATA:  Payrolls: +379,000; Private +465,000; Restaurants: +286,000; Unemployment Rate: 6.2% (down from 6.3%); Wages: +0.2%/ Deficit: up $1.2 billion; Exports: +1%; Imports: +1.2%

IN A NUTSHELL: “The loosening of restrictions is leading to a massive rehiring of workers in those sectors most harmed by the pandemic.”

WHAT IT MEANS:  The pandemic has played havoc with so much of the world and the economic data reflect the ups and downs of the closures, restrictions and reopenings.  We are now in the positive portion of the process and those sectors that were hurt the most are starting to come back.  Payrolls soared in February, at least in the private sector.  Government employment, especially education, cratered.  Still, the overall increase was well above expectations and the gains were pretty widespread.  Fifty-seven percent of the private sector industries had higher employment.  The biggest increase, not surprisingly, was in leisure and hospitality, especially restaurants.  Three-quarters of the total job surge and over sixty percent of the private sector increase came from food service hiring.  Nevertheless, there are still two million fewer restaurant workers on the payrolls than there were in February 2020, just before the pandemic hit.  There were lots of jobs added in manufacturing, health care, retail, temp services, amusement parks and hotels.  Construction was the one private sector component where payrolls were cut sharply.  I am not sure why, but the polar vortex may have played a role in that decline.

As for the unemployment situation, the rate declined modestly, in part because the labor market was largely flat.  The average hourly wage rose moderately, but with the workweek declining sharply, weekly wages fell. 

The trade deficit widened in January, but that is typical of an economy that is growing solidly.  Both export and imports increased, which is what you want to see.  Since import levels are significantly higher than exports, you need export growth to greatly exceed imports for the deficit to narrow.  With the U.S. expanding more rapidly than most other industrialized nations, we should expect the deficit to keep widening for an extended period. 

IMPLICATIONS:  As the vaccines begin to work their magic and businesses and households become confident they can get back to whatever will be the next normal, job growth should remain strong.  But we have a long way to go.  Payrolls are about 9.5 million lower than they were a year ago and the unemployment rate is 2.7 percentage points higher. The issue is how quickly does the unemployment rate come down and where do we wind up at the end of the year.  That is critical since it is likely that the upcoming stimulus bill will be the last stimulus bill.  Thus, businesses will eventually have to start making money the old-fashioned way: They will have to earn it rather than being supported by Uncle Sam.  And household wage gains, not stimulus money, will have to drive income growth and spending.  The reckoning has been pushed off until 2022, when hopefully the pandemic will be largely under control and many firms that are currently nothing more than zombies can operate without the crutch of government welfare.  We will be left with a massive budget deficit and national debt load, but we will have had much stronger economic growth and the unemployment rate will be way below where it would have been without the stimulus funds. Still, it is likely the unemployment rate will be about two percentage points higher at the end of this year than it was when the pandemic hit.  The heavy lifting will come in a year, when the private sector has to take over and the sectors that had been restricted are already operating freely.  But let’s enjoy what should be a really good ride this year, thanks to what is likely to be a huge, if not excessive, third stimulus package.