Friday, March 5, 2021
US payrolls grew at a solid clip month over month in February, as progress in the vaccine distribution process appeared to boost growth by enabling more of the economy to reopen. Our opinion has always been that until we have achieved widespread vaccine distribution, the in-person segments of the labor market will be slow to recover losses from a year ago. We are becoming increasingly bullish on the prospect for a 2021 economic reacceleration, and we are heartened that the hardest hit segments of the jobs market may be beginning to reflect that view.
The US Bureau of Labor Statistics released its monthly employment report this morning, revealing that the domestic economy added 379,000 jobs in February, exceeding Bloomberg-surveyed economists’ forecasts for a 200,000 gain. Large seasonal adjustments to the data did serve to boost the overall number by roughly 140,000, while January’s jobs gain was revised significantly higher from 49,000 to 166,000. Colder weather than normal may have also played some role, though the worst of the freeze experienced by middle America occurred just after the report’s observation window closed. The unemployment rate fell to 6.2% from 6.3%, and was paired with an unchanged labor force participation rate of 61.4%.
“Last month on jobs day, we noted our optimism around an improving trajectory for vaccinations and the implications that may have for future jobs reports,” explained LPL Financial Chief Market Strategist Ryan Detrick. “This has played out so far, and we expect continued vaccination progress to become more evident in the jobs numbers as the recovery reaccelerates.”
Average hourly earnings rose 0.2% month over month and 5.3% year over year, continuing to signal that lower-wage workers have endured the worst of the pandemic’s job losses. Inflation expectations have been in particular focus for the market lately, however inflation risks from a tightening labor market are not of major concern for now in our opinion. We expect overall average hourly earnings to remain steady or even reverse as lower wage workers are rehired in service sector jobs, and we still have lots of slack in the labor market as we hover well below 2020’s peak employment.
The composition of February’s report importantly signals a reversal of COVID-19-driven trends seen in recent months. Retail trade gained 41,100 jobs while the leisure and hospitably industry gained 355,000—two segments that have been hardest hit throughout the pandemic. Meanwhile, professional and business services added 63,000 jobs and government jobs fell by 86,000.
As seen in the LPL Chart of the Day, the jobs recovery in the leisure and hospitality sector has generally plateaued following an initial bounce. This segment of the labor market is highly dependent on in-person interaction, and has understandably suffered in a work-from-home environment. Unsurprisingly, service sector jobs have strongly correlated with broader trends in COVID-19 cases. The leisure and hospitality sector alone still accounts for about 3.5 million of the 9.5 million jobs lost compared to the February 2020 peak. And while we do caution against reading too far into one month’s numbers, we are excited to see this decimated sector tick notably higher in February.
We have not had to look hard to find evidence that vaccines are having an impact. Nationally, seven-day averages for new cases have fallen to below early 2020 peaks, significantly below the highs of late 2020. Perhaps most crucially, the portion of the population most vulnerable to severe symptoms has largely already received at least one dose of the vaccination. A third vaccine was granted emergency use authorization in March, and this week President Biden estimated we would have enough supply of vaccinations to cover every adult by the end of May 2021. Once people can become comfortable with the virus trends, we expect widespread hiring in in-person industries to snowball quickly. February may have signaled a start to this trend.
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