February jobs report: Main Street lays an egg

 

 - by New Deal democrat

I described last month as “the month the birds came home to roost…. In particular, the *entire* gains over the past year were reduced from 584,000 to 181,000 - an average of only 15,000 jobs gained per month.”

Well, this month the nesting birds, to butcher Edgar Allen Poe, started screeching “recession.” 

Below is my in depth synopsis.

HEADLINES:

• -92,000 jobs lost. Private sector jobs declined -86,000. Government jobs declined -6,000. The three month average declined to a puny +6,000.
• The pattern of downward revisions to previous months continued. December was revised downward by -65,000, and January was revised downward by -4,000, for a net decline of -69,000. 
• The alternate, and more volatile measure in the household report, declined by -185,000 jobs. On a YoY basis, this series *DECLINED* -426,000 jobs, or an average of -35,000 monthly.
• The U3 unemployment rate rose 0.1% to 4.4%, which is where it was in December. 
• The U6 underemployment rate declined -0.1% to 7.9%.
• Further out on the spectrum, those who are not in the labor force but want a job now rose by 166,000.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. These were mainly negative:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hours to 41.5 hours, and is now down only -0.1 hour from its 2021 peak of 41.6 hours.

• Manufacturing jobs decreased by -12,000, the 11th decline in the last 12 months. It is now at a 3+ year low.
• Truck driving, which had briefly rebounded early in 2025, declined another -500.
• Construction jobs declined -11,000.
• Residential construction jobs, which are even more leading, rose 2,400, continuing the trend of stabilizing since last April.
• Goods producing jobs as a whole declined -25,000.. 

• Temporary jobs, which have declined by over -650,000 since late 2022, declined again this month, by -6,500, but remained above their post-pandemic low set last October.
• The number of people unemployed for 5 weeks or fewer rose 153,000.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.3%, to $32.03, for a YoY gain of +3.7%, its lowest YoY% gain since the pandemic. Nevertheless, this continues to be significantly above the YoY inflation rate.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers declined -0.2%, and is up 1.2% YoY, about average for the past two years.

• The index of aggregate payrolls for non-managerial workers rose 0.1%, and is up 4.7% YoY, also about average for the past two years.

Other significant data:

• Professional and business employment declined another -5,000. These tend to be well-paying jobs. While this remains above its October low, it remains lower YoY by -0.4%, which in the past 80+ years - until now - has almost *always* meant recession.
• The employment population ratio declined -0.1% to 59.3%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate declined -0.1% to 62.0% , vs. 63.4% in February 2020.

SUMMARY

As I wrote at the outset, this was a recessionary report, partly because of the monthly change, and partly because of the sideways to downward trend in employment it represents since last spring.

There were some bright spots, including another increase in the average manufacturing work week, and residential construction jobs, which like much other data in the housing sector, shows signs of “green shoots,” i.e., that the bottom is being or has been formed. The U-6 underemployment rate* also declined slightly. And hourly wages continued to increase at a good clip.

But the vast majority of leading and coincident indicators in the report were negative: manufacturing, construction, trucking, and temporary help employment all declined, as did the goods-producing sector as a whole. Total hours work declined, and it is almost certain that once we get the inflation report, we will see that real aggregate payrolls also declined. The employment/population ratio* and labor force participation rate* declined. Revisions continued to be negative, and the unemployment rate*, against expectations, increased slightly.

[*These figures come from the Household Survey and may have been affected by the annual revisions, which were delayed a month and were reported this morning. But they were applied to the January numbers, so the month over month changes should not have been affected.]

Finally, please note that these figures are from *before* the war with Iran and its affect on gas prices started - so be prepared for worse in the next several months.

To conclude by returning to my opening comments about birds coming home to roost: this month Main Street, in the form of jobs, laid an egg.

“New regime” of lower jobless claims continues - a good sign (but for geopolitical idiocy)

 

 - by New Deal democrat

Let’s take our weekly look at jobless claims. As a reminder, I pay attention to these because they are a good short leading barometer of the economy in general, and the jobs market in particular.

And the news this week continued to reflect the “new regime” of lower YoY claims that we have seen for the past 8+ months, as well as the post-pandemic unresolved seasonality in which claims generally rise from the beginning of the year until mid-year. 

Initial claims were unchanged at 213,000, and the four week moving average declilned -4,750 to 215,750. With the typical one week delay, continuing claims rose 46,000 to 1.868 million:

As per usual, the YoY% change is more important for forecating purposes. Here, the news was all positive. Initial claims were down -4.9%, the four week moving average down -4.7%, and continuing claims down -1.3%:

All of which is very inconsistent with any near term onset of a recession.

Finally, as per usual let’s take a look at what this might mean for the unemployment rate in the next several months:

Jobless claims continue to forecast downward pressure on the unemployment rate towards 4.2% or even 4.1%. We’ll find out tomorrow. 

The bottom line is that initial claims, like some of the other short leading data like the improvement in manufacturing, suggest that although it is touch and go, the US economy would be increasingly likely to avoid a recession this year. 

I said “would be” rather than “will” because of the ongoing geopolitical idiocy that is the war with Iran — and I believe “war with Iran” is the appropriate term. This is not a “touch and go” like Venezuela. Yesterday our navy sank an Iranian frigate near Sri Lanka, 1000 miles away from the Persian Gulf. And since we just killed all of the immediate family of Iran’s new Supreme Leader, I do not think he is going to be interested in a cessation of hostilities anytime soon.

Strongly positive ISM services report for February gives the best economically weighted reading for the economy in a year, (but also with a big dose of inflation)

 

 - by New Deal democrat

If Monday’s ISM manufacturing report was good (but with a dose of inflation), today’s ISM services report for February was even better (but also with a dose of inflation). Together they negative the likelihood of an economic downturn in the next several months (geopolitical idiocy aside). 

Let’s take a look. Recall that services represent about 75% or all economic activity, with the goods producing sector the other 25%. Also, typically I average the last three months of each reading to reduce noise. As we will see today, I really don’t need to do that, because the message is pretty clear. In all the graphs below, the services reading is in blue, the equivalent manufacturing one in grey.

Let’s start with what has been the most moribund reading — that on employment. On Monday, we saw that manufacturing employment got “less bad,” improving to 48.8. This morning’s services employment diffusion reading was 51.8:

There is strong evidence that there was a bottom in employment last July, and an improving trend since. The three month average in services has been 51.3, i.e., weakly positive. The economically weighted average vs. manufacturing employment’s 47.2 three month average is 50.3 - just barely positive, but nevertheless the best reading in a year.

As similar pattern shows up in the headline number, which for services came in at 56.1 for February. The three month average is 54.6:

The bottom in the headline number was a little before employment, in the May through July period. The economically weighted three month average including manufacturing is 53.7, solidly if not sharply positive.

The more leading new orders component improved to a strong 58.6. The three month average also increased to 56.1:

New orders bottomed in the March through May period of last year. Their economically weighted three month average including manufacturing increased to 55.4, a very positive number — and the most positive number in over 3 years. Needless to say, this is an excellent development for the economy.

But nothing is perfect, and the problem child in both ISM indexes is inflation, in the form of prices paid. The services component did decline to 63.0, bringing the three month average down to 64.9 (which is still a very concerning number for prices), the lowest in over a year:

The economically weighted three month average of prices paid is 63.2, suggesting inflation remains entrenched in the broad economy.

Two final points: first, the ISM services reports have been wildly divergent from the regional Fed services indexes, which have been very negative for months, most recently averaging -10. One of these is giving a false signal.

The second is that the ISM services reports *are* confirming what I have been seeing for months in the Redbook weekly retail spending report, which has not just been positive, but increasingly so in the latter part of 2025 into this year:

Again, I suspect the very strong retail spending data, as well as the services diffusion indexes reported above, has almost everything to do with a wealth effect generated by stock price increases in the past year, which in turn were the result of AI data center related spending. 

In any event, mark down this morning’s services report in the solidly positive column, and hope it does not get derailed by idiocy in the Middle East.

The potential of the US war with Iran for an Oil Price Shock

 

 - by New Deal democrat

There is no important economic data being released today, and nothing in the past several weeks has changed my overall economic outlook: to wit, the meme of a “K-shaped” economy is accurate. The top 10%-20% are doing extremely well, and the “wealth effect” of large stock market gains in 2025 driven by AI-related spending, particularly for data center construction is driving their consumption; while the bottom 80% or so are just barely holding their heads above water. The large majority of important coincident data about income, spending, jobs, and sales bears this out.

Meanwhile, needless to say over the past few days there has been a major geopolitical development: it is fair to say that the US is at war with Iran. I don’t have any particular insight into that development, beyond the sense I have had since the 2024 election that T—-p got very lucky in inheriting an economy on the rise in 2017, and he didn’t have a sense of what levers to pull to be able to affect it that much. But he was not so lucky this time, and now he knows where the levers are; and one thing we know about T—-p is that once he finds a lever that works, he keeps pulling it over and over again. That is also on display militarily: as far as he was concerned, pulling the lever of using the military to decapitate a regime worked very well in Venezuela, so let’s do it again! (Rumors are, Cuba is now next on the list).

But one thing I do have some insight into, is the affect of the price of gas on the US economy. So today, let’s take a look at how that is playing out so far, and what to look for in the immediate future.

To begin with, almost all US recessions in the past 50 years have had a component of an “oil shock.” This has a stagflationary effect: driving up prices, and constricting the ability to spend on other things. Typically that stagflationary effect has kicked it at about a 40% increase in price YoY. While I won’t bother with the oil price chart going all the way back to the 1970s, here is what YoY gas prices have looked like this Millennium:

Most significantly, there was an oil price shock in the 2000s that played a role in the Great Recession, and also operated as a “choke collar” on growth during the first five years afterward.

But it isn’t just the increase per se; rather, as I wrote a few weeks ago, it is a function of how much that price increase hits consumers’ wallets. A 40% increase from a very low price is different from a 40% increase from a price that already was slightly constrictive. To show that, let me update the graph I ran then, of gas prices divided by average hourly wages on nonsupervisory peronnel, showing in effect how long a wage earner has to work to buy a gallon of gas:

As you can see, with the last dip in prices during the winter, gas prices were particularly cheap compared with wages; indeed among the lowest such comparisons since the 1990s.

Now let’s take a look at gas and oil prices since the pandemic, right up until this moment.

Let me start with a graph of gas prices for the past three years:

As you can see, there is a seasonal rhythm to these prices, as refiners change from winter to summer blends and back again. Prices tend to bottom at the end of each year, and rise towards midyear.

Further, since Europe and the US worked around the Russian invasion of Ukraine in 2022, gas prices have generally declined YoY:

But now let’s zoom in on the past 12 months:

With gas prices at the pump rising from $2.94/gallon last week to $3.08 as of this morning, gas is at this moment the same price was it was exactly one year ago.

And because global oil prices lead gas prices at the pump (with the caveat that they go up like a rocket and come down like a feather), here’s a look at global oil prices for the past year updated through this morning:

Oil prices were already rising from a multi-year low of $55/barrel during the Holiday season to $67 as of last Friday, as traders were already nervous about the US naval buildup around the Middle East. Then, on Monday, prices immediately rose to $71 and as of this morning to over $76.

That’s a 38% increase since their lows. Of course, I have no insight as to where oil prices will go next month, next week, or even later today, but if that increase holds, it implies an increase in gas prices from their low of roughly $2.80/gallon to about $3.85/gallon. A 40%+ increase would coincide with roughly gas prices at the pump of $4/gallon.

That kind of increase in gas prices at the pump would definitely concentrate consumers’ minds. But even that, in terms of comparisons with wages, would only take us back to 2006 or early 2023 levels. To create a recessionary “oil shock,” all things being equal we would probably need to see prices of $4.50/gallon or above. To bring things full circle, however, in our present “K-shaped” economy, with most households already just keeping their heads above water, I doubt we need to get that far. I strongly suspect that if the US war with Iran causes gas prices to go to $4/gallon, that by itself in the current situation would be enough to bring about a recession tout suite.

ISM manufacturing In February positive, but with a major helping of inflation

 

 - by New Deal democrat

Most official data series remain about one month behind their normal schedule, despite the government shutdown having ended over three months ago. Thus the ISM manufacturing and services reports, as well as the regional Fed manufacturing and services reports, remain the most timely overall barometers of the economy.

In the past few months the regional Fed manufacturing reports have painted a picture of a sector recovering from the impact of tariffs - which continued to be the case in the February reports. This morning the ISM manufacturing report once again confirmed those trends. But also added one renewed source of concern.

To begin with, the headline number declined -0.2 from 52.6 to 52.4. These have been the two highest reading since August 2022:

The three month average, which I use for forecasting purposes, rose to 51.0, the first time this average has shown expansion since January of last year (recall that 50 is the dividing line between expansion and contraction).

The more forward looking new orders component, which in January exploded from 47.4 to 57.1, settled back only slightly in February to 55.8, still a strong reading:

The three month average is now 53.3, indicating a respectable increase in production in the next few months.

Even employment, which has remained a problem child in this series, continued to trend “less bad,” rising from 48.1 to 48.8:

The three month average did remain contractionary, at 47.2.

But the new cause for concern is the sudden spike in prices. These had already been a concern, in view of the tariff situation. In the latter part of last year, these readings had declined into the 50’s, indicating pricing pressure, but not nearly so much as last spring. This month the prices paid reading blew out from 59.0 to 70.5: 

This was the highest monthly reading since June 2022, suggesting that substantial inflationary pressures are building — not a good thing especially when so much of the economy appears to have been stagnating.

As I have continued to note each month, for the economy as a whole the weighted index of manufacturing (25%) and non-manufacturing (75%) indexes is more important. With the exception of one month last year, the services indexes remained in expansion. So I won’t bother with calculating the economically weighted averages today: with both sectors showing expansion, the ISM indexes indicate the economy is likely in expansion now, and the new orders component is positive for the next several months.

But as I concluded last month, and is even more true after today’s report, the caveat remains the important stagflationary pressures which have been showing up in almost all the recent data.