Employment gains solid, earnings rebound

March 8, 2024

Payroll employment came in at 275,000 jobs in February, after a downwardly revised 229,000 in January. The three-month and six-month moving averages moved up in recent months, after slowing during work stoppages due to strikes over the summer and into the early Fall of 2023. (E.g., The downward revisions to January did not shift the narrative that payroll employment looks like it is picking up again.)

Public sector payrolls accounted for 52,000 of those gains, primarily at the local level, excluding education; job openings excluding education remain extremely elevated and have bucked the cooling trend in total job openings. Hiring for public education regained a lot of ground lost last year. Compensation gains in the public sector exceeded those in the private sector in mid-2023, as union contracts played catch-up on the surge in wages and prices earlier in the cycle. Those shifts and a drop in churn in the broader labor market enabled state and local governments to fill positions that had been vacant since the onset of recovery. Teacher tenure increased in recent years, as younger teachers quit for better pay and benefits in the private sector. 

Private payrolls increased by 223,000. Gains in healthcare and social assistance accounted for nearly 41% of those gains; another 26% came from leisure and hospitality. Overall job gains have remained concentrated in healthcare and social services, leisure and hospitality and state and local government hiring since mid-2023. All three sectors have room to run, given the upward demand for healthcare and travel due to aging demographics and understaffing at the state and local levels. TSA throughput during the survey week included the President’s Day holiday and was up at a double-digit rate from 2019’s level. State and local governments are in better financial shape than they have been in for years, with 46 of 50 states exceeding their revenue targets in fiscal 2023. 

Modest gains were in transportation and warehousing, retail trade and professional and business services. All of those sectors have slowed quite dramatically since mid-2023. In the goods sector, manufacturing was essentially unchanged, held down by non-durable goods employment, after rising in January. Motor vehicle employment was unchanged, as producers struggled to deal with swelling inventories on dealer lots.  

Average weekly hours rose to 34.3 after dropping to 34.1 in February. That is close to the average of 34.4 we saw in 2019 but off from the peak of 35 hours in March and April of 2021. The earnings and hours data together mean that average weekly earnings rose 0.4% in February, after contracting 0.1% last month. That is a much-needed boost to purchasing power, especially after adjusting for inflation.

Separately, the unemployment rate rose to 3.9% in February from 3.7% in January. Participation in the labor market held at 62.5% in February, the same pace as January, and is off slightly from the cyclical peak of 62.6%. A bump in prime-age participation drove that rebound; the rise in prime-age women was greater than that for men. The only loss in participation was among white men, mostly over 55, and Hispanic and Black teens. The ranks of the unemployed increased to 6.45 million in February from 6.1 million last month. About 150,000 of that increase was due to a rebound in the labor force, mostly among foreign born. 

The influx of foreign-born workers was the largest on record and offset a drop in native born, due largely to retirements. The increase in foreign-born employment was the largest on record. Foreign born also participate in the labor force at a higher rate than native-born workers and are helping to alleviate the losses due to the baby boomers’ retirements.  

Average hourly earnings rose 0.1% in February after a downwardly revised 0.5% surge in January. The data in January was skewed by a weather-related drop in hours worked last month, which reversed in February. That translates to a 4.3% gain from a year ago, down only slightly from the downwardly revised 4.4% pace in January. The data goes back to 2007. 

Digging deeper, the ranks of those out of work on vacation are the fourth highest on record for February. The number of those out due to childcare problems was the third highest for February, behind 2023 and 2021. Those out due to parental leave were the highest for February on record; five of the last six months have seen records for parental leave. That is largely due to an expansion of parental leave benefits in recent years; the birth rate jumped in 2021 and fell in the two subsequent years. The data on childcare problems and parental leave go back to 2003. Voluntary part-time rebounded in February after losing some ground in January and remains close to the record high of December. That data goes back to 1955.