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Is the weak February jobs report a sign of things to come?

The economy is coming down from a "sugar high," said one labor expert.
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An extraordinarily weak month of job growth in February was mitigated by an unemployment rate that beat analysts’ expectations and a robust 11-cent increase in hourly wages. As economic growth overall slows, labor market experts said these kinds of mixed signals could become more common, making it tougher for businesses and investors to predict what the future holds.

The Bureau of Labor Statistics said the economy added a mere 20,000 jobs in February. The agency said the drop in the unemployment rate from 4 percent to 3.8 percent could be attributed, in part, to the end of the partial government shutdown. Analysts polled by FactSet had predicted job growth of 181,000 and an unemployment rate of 3.9 percent.

Economists cautioned against reading too much into any single month’s data, pointing out that the three-month average of monthly job gains — which included an additional 12,000 jobs due to upward revisions of December and January figures — was 186,000, a figure roughly in line with analyst expectations.

“Month over month there can be a lot of noise,” said Scott Clemons, partner and chief investment strategist at Brown Brothers Harriman. “There might be a little bit more noise than usual, given that this period captures a little bit of the disruption of the government shutdown,” he added.

“My guess is we’ll still have more months in that 150,000 to 200,000 range,” said Harry Holzer, a professor of public policy at Georgetown University. “It shows that there is still very robust job growth overall, but at the same time, there are limits.”

In 2018, the economy added an average of 223,000 jobs per month. Economists had predicted a slowdown in the labor market for this year, although most expected the decreasing rate of job gains to be more gradual than the sharp drop from January, when 311,000 jobs were added. “These are huge monthly bumps up and down. We’ll see what the next few months bring,” Holzer said.

“Everyone expects growth to slow in 2019 — it’s just a question of how much and how quickly. It will represent, to some extent, a movement towards convergence between labor market data and the rest of the economy,” said Josh Wright, chief economist at iCIMS.

Wright said that iCIMS, which tracks hiring activity, observed weakness in the crucial business services sector. “This suggests broader, cyclical factors,” behind slowing growth metrics. “It’s a real bellwether for what’s going on in the economy as a whole,” he said.

The waning effects of last year’s big tax cuts also played a role, Clemons said. “I think there’s no question that economic activity will moderate in 2019, but the reason it will moderate in 2019 is because 2018 was boosted by the tax cuts,” he said. “On a year-over-year comparison, the benefits of the tax cuts are now baked in.”

Even with fewer jobs being added, the increase in wage growth, which now is at 3.4 percent on an annualized basis, indicate that the labor market remains tight. “I think wages will continue to accelerate over the course of this year,” Clemons predicted.

“It’s all consistent with a market where employers maybe are starting to run into some hiring difficulties,” Holzer said.

The one thing economists are willing to predict with certainty is that labor market volatility is likely to be a more frequent occurrence. “It’s been a remarkably steady labor market,” Wright said, suggesting that period of relative predictability could be drawing to a close. “This is the end of the sugar high, and it can be a little bumpy on the way down,” he said.