Payroll Gains Improve, but Bad Weather Hurts the Work Week

After two months of sub-par reports on payroll gains, the BLS employer survey showed a rebound in employment growth in February. Employers reported that payrolls rose 175,000 in February. While this is off the pace of monthly gains in the 12 months to November 2013 (205,000), it is sharply higher than employment growth in December 2013 and January 2014. BLS initially estimated that payrolls increased just 74,000 in December and 113,000 in January. Upward revisions in estimated job gains for those two months added about 25,000 to January’s payrolls. Employment growth has slowed in the past three months, but not as dramatically as initial estimates of December and January payrolls suggested.

In advance of the BLS report observers speculated that February’s severe weather may have dampened employment growth. If so, we should expect job growth in future months will erase the effects of bad weather in February. Adverse weather was certainly reflected in some of the statistics reported this morning. The BLS household survey showed a spike in the number of workers reporting they worked short hours as a result of bad weather. A total of 6.9 million people who usually work full time reported working less than 35 hours because of the weather. By comparison, in the February surveys between 2000 and 2013 an average of about 1.2 million workers reported working less than full time hours as a result of bad weather. Thus, bad weather last month reduced weekly hours for more than five times as many workers as are affected by bad weather in a typical February.

The household survey showed a small rise in employment and a 0.1 percentage-point increase in the unemployment rate, which reached 6.7% in February. This is approximately the same rate we have seen since December of last year. Monthly employment gains reported in the household survey tend to be much more erratic than those reported by employers. In December through February, job gains in the household survey averaged 274,000 per month. By comparison average payroll gains in the employer survey averaged just 129,000 a month. The rapid job gains in the December to February household surveys partly offset weakness in earlier surveys, however. In the 12 months through February 2014, the employer survey shows payroll gains have averaged 180,000 a month compared with employment gains in the household survey that have averaged just 150,000 a month. I suspect the employer payroll reports offer a more accurate picture of employment gains over the past year. If so, the latest payroll numbers suggest the job market has resumed its slow improvement after two months of weakness.

Most of the revisions in the December and January payroll numbers reflect new estimates of employment in the government sector. Public payrolls were revised upward in December and January. Even with the revisions, estimated government employment fell in those two months. Government payrolls increased 13,000 in February compared with January, but they are still 32,000 below their level a year ago. The good news is that government job totals shrank more slowly in the past year than was the case in the previous four years.

One surprise in January’s employment report was the weakness of payroll growth in the health care sector. For the first time in many years, the BLS reported virtually no change in health employment for two successive months. A small upward revision in estimated health sector payrolls in January changed the picture slightly, but for the third month in a row February’s employment report showed very slow job gains in health. In the 60 months through November 2013, payroll gains in the health sector averaged slightly more than 20,000 a month. In February, the gain was less than half that, and in the three months since November 2013 gains have averaged less than 6,000 a month. If the government and employers are successful in restraining cost increases in health care, one result may be a long-lasting slowdown in the rate of employment growth in the health sector.