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Economic & Housing Weekly Note

Leisure and Hospitality Drive Employment Gains in February

March 5, 2021

Key Takeaways:

  • Nonfarm payroll employment increased by 379,000 in February, though remains 6.2 percent below the level seen one year ago, according to the Bureau of Labor Statistics. Most of the increase was accounted for by the leisure & hospitality sector, which gained 355,000 jobs, though remained 20.4 percent below the level seen last year. Other sectors seeing notable employment increases were professional & business services (+63,000), health services & social care (+46,000), and retail trade (+41,000). The largest decreases were in the government sector (-86,000) and in construction (-61,000), though residential construction employment (including specialty trade contractors) declined only slightly. The unemployment rate ticked down one-tenth to 6.2 percent.
  • Revised nonfarm business productivity fell 4.2 percent annualized in Q4 2020, an improvement of six-tenths from the preliminary estimate, according to the Bureau of Labor Statistics. Real output was revised upwards by two-tenths to 5.5 percent annualized, while total hours worked were revised down six-tenths to a 10.1 percent annualized. Unit labor costs jumped 6.0 percent annualized, though this was eight-tenths lower than originally estimated.
  • The ISM Manufacturing Index increased 2.1 points in February to 60.8, the highest level in three years. Any reading above 50 indicates expansion. The new orders, production, and employment indices all increased, with the employment index rising to the highest level in almost two years. The ISM Service Index dropped 3.4 points in February to 55.3, the first decline since October and the largest decline since April. The business activity, new orders, and employment indices all declined, though they remained in expansion territory.
  • Light vehicle sales fell 5.6 percent in February, the largest monthly decline since April 2020, to a seasonally adjusted annualized rate (SAAR) of 15.9 million, according to Autodata. From a year ago, sales declined 6.7 percent.
  • The real goods trade deficit (an input into the calculation of net exports) widened by approximately $1.5 billion to $96.5 billion in January, according to the Census Bureau. Real exports fell 0.7 percent, the first decline since last May, while imports rose 0.2 percent.
  • Factory orders grew 2.6 percent in January to the highest level since September 2018, according to the Census Bureau. After excluding orders for transportation equipment, factory orders rose 1.7 percent. Factory shipments rose 1.9 percent to the highest level on record. Nondurable goods orders increased 1.9 percent, though they remained 0.6 percent below the levels seen a year ago. Core capital goods orders increased 0.4 percent, while core shipments jumped 1.8 percent.
  • Private residential construction spending increased 2.5 percent in January, rising to the highest level on record, according to the Census Bureau. New single-family spending rose 3.0 percent to the highest level since October 2006, while new multifamily spending increased 0.7 percent to a series high. Spending on improvements grew 2.3 percent.
Forecast Impact:

The strong increase in leisure/hospitality employment in February is likely due to an easing of COVID-19-related restrictions as the pace of daily new cases has fallen sharply. In the coming months, as more people receive vaccines, and with many state governments either lifting restrictions wholesale or planning on lifting them over the next few months, we believe further gains in the leisure/hospitality sector are likely. The slower pace of expansion in the service sector and the large decline in February auto sales were likely partially a result of the extreme weather that affected Texas and much of the south. Auto sales were likely also impacted by the global semiconductor shortage, which may be limiting the inventories available for sale. Regardless, we may need to adjust our outlook for consumer spending in Q1 2021. The expansion of the manufacturing sector, along with the strong showing in core capital goods shipments, is a boon to the business investment component of GDP, though the widening of the real goods trade deficit will likely offset some of that strength. While productivity fell sharply, this was due to a large increase in total hours worked, which outweighed the increase in real output. In housing, the increase in January construction spending supports our expectation of relatively solid residential investment in Q1 2021. However, the extreme weather in February is expected to lead to a decline in construction spending in February. While we do not have February construction data, February construction employment fell for the first time since April, though it doesn’t appear residential construction employment was affected.

Ricky Goyette
Economic and Strategic Research Group
March 5, 2021

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.