US private Feb. payrolls jack up modestly; tight labor market emerging

WASHINGTON — US private payrolls increased less than expected in February amid job losses in manufacturing and construction, suggesting the labor market was struggling to regain speed despite the nation’s improving public health picture.

Part of the labor market’s problems appear to be rooted in a shortage of workers. Other data on Wednesday showed job growth in the services industry retreated last month, with businesses reporting they were “unable to fill vacant positions with qualified applicants” and “need more resources to meet demand.”

That was also corroborated by the Federal Reserve’s Beige Book report, which noted “continued difficulties attracting and retaining qualified workers” by many of the US central bank’s contacts last month, with labor shortages “most acute among low-skill occupations and skilled trade positions.”

The year-long coronavirus disease 2019 (COVID-19) pandemic is keeping some workers at home, fearful of accepting or returning to jobs that could expose them to the coronavirus. The data was published ahead of the government’s closely watched employment report on Friday, and could temper expectations for an acceleration in job growth in February. The ADP’s private payrolls report, however, has a poor track record predicting the private payrolls count in the government’s more comprehensive employment report.

Private payrolls rose by 117,000 jobs last month after increasing 195,000 in January, the ADP National Employment Report showed. The report is jointly developed with Moody’s Analytics. Economists polled by Reuters had forecast private payrolls increasing by 177,000 jobs in February.

Construction employment fell by 3,000 jobs and manufacturing payrolls decreased 14,000. Hiring in the services sector increased by 131,000 jobs, with the leisure and hospitality industry adding 26,000 positions. Harsh weather in some parts of the country was also likely a factor holding back gains.

Still, the labor market has been slow to regain traction even as some restrictions on services businesses have been rolled back amid a drop in new COVID-19 infections and hospitalizations. Though the rate of decline in coronavirus cases has stalled, economists still believe the labor market will accelerate in the spring and through summer.

In a separate report, the Institute for Supply Management (ISM) said its measure of services sector employment fell to a reading of 52.7 in February from 55.2 in January.

The lack of significant improvement in the labor market is also despite nearly $900 billion in additional pandemic relief provided by the government in late December, which boosted consumer spending and positioned the economy for faster growth in the first quarter.

Gross domestic product growth estimates for the first quarter have been raised to as high as a 10% annualized rate from as low as a 2.3% pace. The upgrades also reflect President Joseph R. Biden’s $1.9 trillion recovery plan, under consideration by Congress. The economy grew at a 4.1% rate in the fourth quarter.

RISING COSTS

According to a Reuters poll of economists, the government will likely report on Friday that nonfarm payrolls increased by 180,000 jobs in February after rising only 49,000 in January.

Hopes for a pick-up in hiring last month were supported by a survey last week showing consumers’ perceptions of the labor market improved in February after deteriorating in January and December. In addition, a measure of manufacturing employment hit a two-year high in February.

The retrenchment in services employment last month contributed to the ISM’s broader non-manufacturing activity index declining to a nine-month low of 55.3 in February from 58.7 in January. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of US economic activity.

Brutal winter storms lashed Texas and parts of the populous South region in mid-February.

The lack of qualified workers at suppliers and manufacturers is creating bottlenecks in the supply chain, sticking businesses with higher production costs. The survey’s measure of prices paid by services industries jumped to 71.8, the highest since September 2008, from 64.2 in January.

It mirrored findings of the ISM’s manufacturing survey this week and a surge in consumers’ near-term inflation expectations. —