A very positive report overall. Here are four main points about today’s release:
1. Private payrolls increased by 222,000 jobs in February; government employment decreased once again, so total payrolls increased by 192,000. Oh, and the job gains, which have been pretty widespread, were revised upward by 58,000 jobs from the previous two months. Not too shabby.
2. The unemployment rate fell, that’s right, fell, to 8.9 percent. If you recall, the unemployment rate fell 0.8 percentage point from November to January, the largest 2-month drop since Ike was President, and truth be told, we thought it might tick up some for technical reasons.
3. State and local employment continues to contract, dropping 30,000 jobs in February. State and local employment has fallen 14 out of the last 16 months. Ouch. Unfortunately, many expect this trend to continue for a while longer.
4. Finally, coupled with today’s employment report, the economic data this week generally exceeded expectations.
A bit more detail
Other indicators of the labor market have been signaling improvement, so the anemic January payroll numbers caught us off guard (though we do understand the concepts of standard errors and data revisions). Today’s report fell in line with expectations, but let’s keep in mind that forecasts do not include revisions. Say what? What I mean is that the private folks were expecting 197,000 new jobs, but what really happened was that we had 192,000 new jobs in February PLUS 58,000 “new” jobs in the previous two months due to revisions. So, compared to what was REPORTED last month, we’re up 250,000 (kind of sweet that it is exactly a quarter of a million). Will a “quarter of a million” be reported widely? Probably not, but it should be. Seriously.
Today’s report caps off a week of unequivocally good economic news (well, with the exception of the volatility in oil prices). The more notable tidbits include: new claims for unemployment insurance dropped, a couple surveys of purchasing managers showed accelerating economic growth, and folks bought more cars and trucks in February than January.
Job growth has been widespread
When headline job growth over recent months came in disappointingly low, it was easy to forget that hiring, like the recovery as a whole, actually has been quite widespread. To gauge the breadth of employment growth, analysts typically look at “diffusion indices” which measure whether job gains were spread across many industries or concentrated in just a few.
Specifically, the Bureau of Labor Statistics (BLS) calculates the private sector employment diffusion indices by tallying whether, over a given time period, employment in 267 (mostly NAICS 4-digit) private-sector industries increased, decreased, or remained unchanged. The increases are given a score of 1, declines a score of zero, and unchanged industries a score of 0.5. The diffusion index is the average of these scores multiplied by 100. A score of 50 tells us that an equal number of industries gained and lost jobs. Scores above 50 indicate that more industries added jobs than lost them. BLS publishes diffusion indexes for 1-, 3-, 6-, and 12-month spans for private sector industries. It also publishes separate indices for manufacturing industries.
As might be expected, the 1-month diffusion index is highly correlated with changes in private-sector employment. When many industries are adding workers, job growth generally is strong. In January, this was not the case and so that month provided a sound example of the utility of diffusion indices. Private-sector job growth in January was a relatively low 68,000 jobs, well under half the 167,000 jobs added in December. Yet the diffusion index edged up from 58.6 percent in December to 60.1 percent in January. (See Figure 1) In other words, industry employment gains were even more widespread in January than in December. This helps confirm that most industries were still adding jobs, notwithstanding the disappointing monthly number of job gains. In short, January’s headline job growth was an anomaly, as industries predominately continued on the path of job growth.
Today’s strong job growth report confirms that the labor market recovery is not only underway, but also gaining momentum and scope. The robust headline job gains came as the 1-month diffusion index jumped to 68.2 percent, its highest level since January 1998. One additional detail to keep in mind about the diffusion index: with the 1-month index having surged past 60, employment growth is already broader than from 2004 to 2006, when the economy was in the midst of its last expansion. (See Figure 2)
~Mark Doms, Chief Economist, U.S. Department of Commerce
March 4, 2011
