This Jobs Report Is a Little Ugly, but Where Does It 'Put' Trump and the Fed?
Whichever way you look at it, there was a near catastrophic loss of full-time positions across the county.
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The Bureau of Labor Statistics released the results of that agency's two employment situation surveys for the month of February. I had given readers my estimate for 153,000 seasonally adjusted payroll additions in my Friday Market Recon column. The actual print landed at 151,000, so one could say that I was "close." That said, a lot of the data within these reports do not fit nicely with the rest of the data released, so how accurate was that non-farm payrolls number? Good question. Impossible to answer with anything approaching certainty.
Additionally, we know for a fact that the majority of the recent job cuts made across the federal government came after the collection of this data, so the results are in all likelihood, less "cheery" than they appear. This report, in my opinion, plays into the narrative that the U.S. economy is slowing, that labor markets are less robust... especially without the fiscally inappropriate support provided by the federal government, and that this could even slow consumer level pricing. That would at least offset to a degree some of the inflationary impacts of the current trade war between the U.S. and its trading partners.
Job Creation
What the heck, BLS? Here we go again. As mentioned above, from the Establishment Survey, the BLS reported 151,000 net non-farm payroll additions. Factor in an upward revision of 16,000 jobs for December and a downward revision of 18,000 jobs for January, and the net NFP number for February job creation comes to 149,000.
Now, we turn to the number of employed persons reported in the Household Survey. Wait for it... that survey shows job destruction, not job creation of 588,000 positions, but only an increase of 203,000 unemployed persons. Where did the rest of those job losses go? 385,000 individuals dropped out of the civilian labor force. Yikes.
This took the participation rate down to 62.4% from 62.6%. This is the lowest level of participation since January 2023. The probably more important employment to population ratio dropped to 59.9% from 60.1%. This is the lowest level for this data-point since November 2022.
Demand for Labor
After all of those numbers, the Unemployment Rate (U-3) increased from 4% even to 4.1%, as the Underemployment Rate (U-6) increased quite sharply from 7.5% to an even 8%. Why is that? The number of those working part-time for economic reasons increased by 460,000, while the number of persons working part-time for non-economic reasons increased by 136,000. That's 596,000 net new part-time workers. Whether you believe that the nation created a net 149,000 jobs or suffered a loss of 588,000 jobs, this means one thing for sure. Either way, there was a near catastrophic loss of full-time positions across the county.
Looking at other metrics that measure demand for labor, hourly wage growth for February increased 0.3% month over month, down from the 0.5% pace of January. Year over year, wage growth slowed to 4% from 4.1%. A real problem is becoming the average workweek for full-time hourly wage workers. This does not include those who have been downgraded by their employers to part-time to save on payroll. This number had fallen to an average of 34.1 hours in January and stayed there in February. For those unaware, this is awful. The low end of normal has historically been 34.3 hours. This is now three consecutive months that full-time workweeks have been running at levels below what we historically have considered to be poor.
Demographics
The unemployment rate along gender, ethnic background and education:
- Adult Men... increased from 3.7% to 3.8%.
- Adult Women... increased from 3.7% to 3.8%.
- Teenagers... increased from 11.8% to 12.9%.
- White... increased from 3.5% to 3.8%.
- Black or African American... dropped from 6.2% to 6.0%.
- Asian... dropped from 3.7% to 3.2%.
- Hispanic or Latino... increased from 4.8% to 5.2%.
- High School Dropouts... increased from 5.2% to 6.0%.
- High School Graduates... dropped from 4.5% to 4.2%.
- Some College / Associate Degrees... held steady at 3.5%.
- Bachelor's Degrees and more... increased from 2.3% to 2.5%.
The Deal
Treasury yields rallied on the release and then sold off a few minutes later. The knee-jerk apparently was that easier monetary policy could be on the way. The post knee-jerk move was likely based on the reality that the economy is going to struggle for a little bit. Will the president pull back on his regime of tariffs? He might. It's become apparent that this is a negotiation tactic and not a means to an end.
That said, there is now, according to futures markets trading in Chicago, a 92% probability for a first 25-basis rate cut for 2025 in June. This is up from a rough 50/50 not too long ago. There are also two more 25-basis rate cuts now priced in over the balance of the calendar year to make a total of three cuts for 75-basis points. That's up from expectations earlier this year for one cut worth 25-basis points for the entire year.
Is there a Trump put somewhere for equities? Maybe, but I think the president will hold his ground if he is working towards a goal and short-term pain is, in his view, a temporary way to get there.
Is there a Fed put? I think there is. The natural doves outnumber the natural hawks on the committee. At the least, the Fed probably should end the quantitative tightening program at the March 19 policy meeting. The last thing we need right now would be a self-inflicted liquidity crisis, especially if the government is forced into a partial shutdown on March 14 when current funding will run dry.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
