February Employment Report Confirmed Our Outlook Fears

Includes: DIA, QQQ, SPY
by: Dr. Scott Brown

Excerpt from Raymond James Economist Dr. Scott Brown's latest economic commentary:

Payroll weakness was widespread in February with declines in construction (-39,000), manufacturing (-52,000), wholesale and retail trade (-41,000), finance (-12,000), and administration services (temp-help down 28,000). Impervious to the economic cycle, healthcare added 36,000 (+2.8% y/y). Curiously, employment at restaurants and bars advanced by 20,000 (+3.0% y/y).

The unemployment rate edged down, surprisingly, in February, but that was due to more people exiting the labor force. Softness has appeared around the edges. The unemployment rates for teenagers and young adults are significantly higher than a year ago. The unemployment rate for those aged 25 years and over was 3.8%, vs. 3.6% a year ago. Yet, the employment-to-population ratio, a better measure of slack in the labor market, has moved higher over the last year.

Tolstoy said that “happy families are alike; every unhappy family is unhappy in its own way.” Economists have long suggested that this view applies to recessions as well. Yet, while their causes may be different, there are similarities. Recessions are typically associated with structural change. Many lost jobs are perceived to be permanent – that is, not due to a temporary slowdown in demand. We may be seeing such a pattern now.

Much of the increase in structural layoffs is related to the housing correction and the related problems in the financial markets. However, higher energy prices have clearly dampened the near-term consumer spending outlook (especially as households are less able to tap into home equity to smooth consumption out).

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