The U.S. Employment Report Vastly Missed Expectations

Mar 08, 2019 | Nick Scholte


This is the third sub 50,000 reading in employment gains since 2016. The prior two episodes were worse, and did not derail the economic expansion. That said, a notable miss of expectations such as this bears scrutiny and has my attention

To my clients:

It was a down week for North American stock markets with the Canadian TSX falling 0.4%; the U.S. Dow Jones Index falling 2.2%; and the U.S. S&P 500 falling 2.2%.

The past week has seen the release of the “big three” monthly economic indicators I almost always cite in my weekly updates:

last Friday, at 54.2, the ISM Manufacturing Index notably fell from the prior month’s reading of 56.6 as well as missed consensus expectations for a 55.5 reading

on Tuesday, at 59.7. and in nearly polar opposite fashion, the ISM Non-Manufacturing Index (aka “Services”) rose notably from the prior month’s reading of 56.7 as well as beating consensus expectations for a 57.3 reading

Today, the U.S. Employment Report vastly missed expectations at just 20,000 new jobs created for the month of February vs. expectations of 181,000 new jobs.

Of the above metrics, the miss on the Manufacturing Report was roughly offset by the strength in the Services report. Further, while a reading of 54.2 on the Manufacturing Report is not “strong”, it’s probably fair to characterize it as only slightly less than middling, and is not a concern in and of itself at this juncture. The Non-Manufacturing (Services) result was outright strong. I’ll not comment further on these two indicators.

The more noteworthy news came on the Employment front. Today’s significantly weaker than expected result marks just the 3rd time since 2016 that monthly employment came in at under 50,000 new jobs for the month. However, it might be worth noting that the prior sub 50,000 readings came in even worse, with March of 2016 seeing just 11,000 jobs created and June of 2017 seeing just 18,000 new jobs created. Also of note is that last month’s already gangbuster employment report was revised slightly higher to 311,000 new jobs created. The point being that the 10-year old economic expansion has seen a couple of low readings like this before, yet the expansion has remained intact. Further, were one to average the readings of the past two months, said average would have been roughly in line with economists’ expectations. In short, I suspect this miss will, over time, prove to be a blip and nothing more ominous. That said, a miss such as this still bears watching, and it certainly has my attention. More so given the accompanying miss in the Manufacturing data.

While the three economic data points noted above were all noteworthy in their own good and bad ways, I’d suggest their correlation to this week’s market declines are weak at best. Quite frankly, markets are very “overbought”, having rallied in almost uninterrupted fashion since the December 24th lows of last year. A pause and mild giveback should not be unexpected after such a strong run.

That’s it for this week. All the best,


Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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