Why February’s job report headline numbers aren’t as strong as they may seem

Joe Brusuelas, RSM chief economist, joins Yahoo Finance to break down the latest jobs report for the month of February.

Video Transcript

MYLES UDLAND: Let's turn to some more details in this report. We're joined now by our good friend Joe Brusuelas. He's the Chief Economist over at RSM. Joe, good to see you this morning. Let's just start with your initial reaction to a nice beat on the headline number and some repair, perhaps, underneath the surface in those really hard-hit industries.

JOE BRUSUELAS: OK, so when you look at the data, you need to decompose and look at the composition of it. When I'm looking at this data, what I see is 355,000 jobs were added in one category, leisure and hospitality, only 24,000 ex-leisure and hospitality. Moreover, when you go to the higher-paying positions, say business services, they added 63, but 53,000-- 63,000, but only 53,000 were temps.

Moreover, you saw large job losses in higher-paying goods producing, that's 48,000 decline. In construction, a 61,000 decline. What you're seeing is somewhat of a make up for the very large decline in December of 498,000 in leisure and hospitality. The data is all over the place.

You're getting a little bit of an overreaction in the 10-year, which I'm looking here, was up at 1.61 a couple minutes ago. I think once analysts are able to digest this jobs report, you're going to see things settle down a bit. This isn't as strong as the top line implies. Nevertheless, you are going to continue to see a pretty strong move across the yield spectrum this morning.

JULIE HYMAN: Joe, break that down for us a little bit more why you think this isn't as strong as it implies. Is it because of the bulk of it is in leisure and hospitality? And--

JOE BRUSUELAS: Yeah.

JULIE HYMAN: Can we extrapolate--

JOE BRUSUELAS: It's all in one category.

JULIE HYMAN: --forward? Is this what we're going to continue to see?

JOE BRUSUELAS: OK, so it's all in one category this month. Once we begin to really open up April, May, June and July, yeah, you're going to see really strong numbers. I mean, we were expecting an average of around 675,000 a month over the 12-month period of 2021. But mid-to-late year, you're going to see job gains above a million per month as people stream back into the labor force, right.

Now we're just talking here about the establishment survey. These are the top lines headlines that the market sees. When you get down into the household survey, you get a little bit more of a reality check. For example, the labor force participation rate, it didn't change. The unemployment rate fell to 6.3.

But as I'm looking at the data here, what it implies? Well, you know, the pandemic-induced unemployment rate's still going to be above 7. The real unemployment rate, once we account for all the people who've exited, is well above 10. And of course, the U6, that's the broader underemployment measure, is sitting at 11.1, unchanged from last month.

So you really get a split decision once you really start to dig into this data. Nevertheless, that's a strong top line number. I did like the upward revision of 166,000 in January. So we'll see how the market digests this year over the next hour or so.

BRIAN SOZZI: So Joe-- right. This-- this is a strong headline. Is it strong enough that ultimately, I guess to your point, that the economy is back or is creating a million jobs a month? And if that is, in fact, the case, is this report-- is this the report the one-- that sends the 10-year to 2%?

JOE BRUSUELAS: Well, this report's not going to send the 10-year to 2%. It's going to top out here in a few minutes and start to come back. Look, we will see rates rise as the economy improves. But we're still 10 million jobs short of where we were prior to the pandemic. And policymakers are going to be looking at that.

Remember, a lot of people in the markets don't seem to have gotten the message from the central bank that it's not going to alter its path of monetary policy regardless of how rates move from day-to-day. They really are focused on returning to what we call full employment. Powell hinted at 4% yesterday. I think that's closer to 3.5%, but we can quibble over that.

I think the important thing here is, is that at one point should rates begin to really be problematic in terms of the bond market getting out over its skis, I wouldn't be surprised to see the Fed act. I'm one of the main proponents that they ought to think about Operation Twist 3. That means they should sell at the front end, take the proceeds, buy at the long end, and damp down rates, because we're not out of the woods yet. There's too much of a zero-one conversation going on in markets for my taste.

Yeah, we're going to get a $1.9 trillion fiscal aid and stimulus package this weekend. That's going to stoke demand midyear into late year. But it will be some time before we're back to full employment. Remember, the goal here is not getting back to the pre-pandemic level of overall GDP. It's getting back to full employment. And that's- you want to keep your eye on the ball when it comes to that.

JULIE HYMAN: Joe, just quickly here, at this point is the Fed watching the equity market more closely than its watching the bond market?

JOE BRUSUELAS: Well, I wouldn't say that. I think that they do pay attention to the equity market. But right now it's very clear, as we saw in Mr. Powell's statement yesterday, moves in the bond market got the attention of the Fed. And you should expect the Fed to address that at its March 15 and 16 meeting. Of course, that's the next big date after today.

MYLES UDLAND: All right, Joe Brusuelas, Chief Economist at RSM. Joe, I look forward to following how we kind of normalize that-- that labor market, because you had an interesting breakdown there of just kind of flattish if you take out leisure and hospitality and be interesting to see how those trends evolve in the months ahead. And I know we'll be in touch to track all of that with you. Joe Brusuelas, appreciate the time this morning.