3 Takeaways From the February Jobs Report

After two weeks where the market needed some good news, it certainly got some with the release of the February jobs report. The number far exceeded expectations. According to the U.S. Labor Department, the economy added 273,000 jobs in February. That far exceeded the 175,000 that analysts had expected.

The robust number also matched the upwardly revised January jobs numbers that initially came in at 225,000. In addition to the January number increasing, the December jobs number was upwardly revised as well. The 37,000 additional jobs reported brings that number to 184,000. When put all together, the past three months have seen average job gains of 243,000 which is ahead of the pace of the job growth for all of 2019, which was 178,000.

Due to the job gains, the unemployment rate ticked back down to 3.5% from 3.6%. This reclaimed the 50-year low for that important economic indicator. The labor participation rate remained unchanged from January at 63.4%. Putting the two numbers together shows a “tight” labor market which means that a high percentage of the working-age population are either employed or actively seeking employment.

Average hourly earnings were also on the rise, up 0.3% which was in-line with expectations. This was above the 0.2% rate posted in January. However, this can be seen as a glass-half-full or half-empty number. Some analysts have cited the tepid rate of wage gains as an indication that the economy is not as strong for the working class as it is projected to be.

In every job report there are sectors that do better than others. Not surprisingly, health care was among the better sectors. The health care and social assistance sectors added a combined 56,500 jobs. Construction continued to show strength in 2020. The sector added 42,000 jobs after reporting 49,000 in January. That is the best two-month advance in the sector in nearly two years.

On the downside, retail continued to shed jobs. The 7,000 positions reduced this month add to the 5,800 net job decline in January.

But the real question for investors is what does this all mean? Here are three things for investors to focus on coming off of this jobs report:

The economy may have a slight buffer from the coronavirus – The elephant in the room for investors is what effect the coronavirus will have on the economy. Companies are still trying to determine what, if any, effect the virus is going to have on their business. Microsoft (NASDAQ:MSFT) is mandating employees to work from home temporarily. Will other businesses follow suit? Cruise lines and airlines are seeing a surge in cancellations or lack of reservations. Is this a temporary setback or one that will be a drag on the economy for several months? The reality is the overall economic impact from a potential decline in consumer spending is not shown in these numbers. However, this strong jobs report may be an indication that there is a bit more slack in the economy than previously thought.

The stock market may not need further rate cuts – The Federal Reserve board meets next week. There is talk of another rate cut, in addition to the 50 basis points emergency cut the Fed issued on March 3. After the jobs report, the administration signaled its desire for further cuts. The market showed signs of recovering from its overnight lows but still showed weakness even after the strong report. There will be no resolution to the coronavirus-inspired volatility by next week’s meeting so this will be something for investors to watch carefully. A rate cut may be a signal that the Fed is growing concerned about the economic outlook.

Manufacturing may be making a comeback – Among the only concerns in previous jobs reports was a decline in manufacturing jobs. Analysts were forecasting that the slide in manufacturing was largely due to the lack of a trade deal with China. With that in the past, the 15,000 net new jobs was a welcome sign to market watchers. Of course, even this number has to be taken with a grain of salt as these gains could be short-lived.

Overall, the jobs report is just one data point for investors to consider. However, in an election year, the economy will be a topic of debate and discussion. Data like that in the jobs report can help take the emotion out of investment decisions.