February’s job report exceeded expectations, but as one analyst said, “…it is a look in the rear view mirror.” The economy has been on a roller coaster ride over the last few weeks. Even though the economy seemed to have been on a steady incline, data pointing to a slowdown is continuing to grow. With all the data being released over a month ago, before the coronavirus was shutting down travel and causing major events to be cancelled, we are sure to see a drop in many areas once the effects have begun to sweep through.
The labor market shows little evidence of any problems in February, but they are lurking just under the surface. Yet, with job gains smashing expectations, revisions rocketing 85,000 to the prior two months, resulting in job gains that are in a clear uptrend, unemployment dropping down to 3.5% which is a 50-year low, it is hard to see how there are any problems. The three-month average of job creation exceeded both the six and 12-month averages. The hours worked per week and labor force participation were also on the up and up.
The labor market wasn’t the only positive data release to happen either. Despite the expectation of jobless claims increasing due to supply chain disruptions, they fell. Construction spending in January pushed the y/y well above the longer-term average, and the ISM services index showed expansion.
This all sounds too good to be true, because it is. These reports are a look in the past because the coronavirus is changing everything. The first thing to keep an eye on will be job openings. A reduction in job openings will be the first sign that a problem is on the horizon. Companies tend to avoid hiring prior to laying off employees. March’s employment report will be the most closely watch one in a long time.
There are some economic benefits to grocery stores and online retailers as people are stocking up on goods and toilet paper. Netflix, Hulu, Amazon, and other streaming services are expected to see a huge increase in demand as people are changing their daily lives to stay home.