February Jobs Report: 20K New Jobs, Major Disappointment

This morning's employment report for February showed a 20K increase in total nonfarm payrolls, which was much worse forecasts. The unemployment rate fell to 3.8%. The Investing.com consensus was for 181K new jobs and the unemployment rate to drop to 3.9%.

Here is an excerpt from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

Total nonfarm payroll employment changed little in February (+20,000), and the unemployment rate declined to 3.8 percent, the U.S. Bureau of Labor Statistics reported today. Employment in professional and business services, health care, and wholesale trade continued to trend up, while construction employment decreased.

Here is a snapshot of the monthly percent change in Nonfarm Employment since 2000. We've added a 12-month moving average to highlight the long-term trend.

PAYEMS Monthly Change

 

The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and the S&P Composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top series in the chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The mirror relationship appears to be repeating itself with the most recent and previous bear markets.

Unemployment and the Market

 

Now let's take a look at the unemployment rate as a recession indicator or more specifically the cyclical troughs in the UR as a recession indicator. The next chart features a 12-month moving average of the UR with the troughs highlighted. As the inset table shows, the correlation between the MA troughs and recession starts is remarkably close.

Unemployment and Recessions

 

We've added another chart to illustrate the reality of the unemployment rate - the unemployment rate divided by the labor force participation rate.

 

The next chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It is now at 0.8%, unchanged from the previous month.

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