WASHINGTON, D.C. – The U.S. economy likely added jobs at a solid pace in February before an escalation of the coronavirus outbreak disrupted factory supply chains, slowed business travel and heightened economic fears.
Economists estimate that employers added 170,000 jobs and that the unemployment rate held at a very low 3.6%, according to data provider FactSet. The government will release its report Friday at 8:30 a.m. Eastern time.
The forecast suggests that the viral outbreak has yet to produce a measurable impact on the job market. The data for Friday's jobs report was gathered mainly in the second week of February, before the virus began to spread through the United States.
Most economists expect some slowdown in hiring in the coming months. If employers were to start slashing jobs, it could significantly escalate the economic damage. For that reason, a range of job market barometers will provide some of the most vital signals about how the economy is withstanding the virus' impact.
Widespread layoffs can transform slowdowns in just one or two sectors — the travel industry, say, or manufacturing — into a full-blown downturn for the overall economy. When workers lose jobs and pay, they typically cut spending. Their friends and relatives who are still employed grow anxious about their own jobs and wary of spending freely, a cycle that can trigger further job cuts.
Layoffs “tend to build on each other,” said Tara Sinclair, an economist at the jobs website Indeed. “That spiral is really what we're worried about happening.”
So long as monthly job gains remain above 100,000 or so, the unemployment rate should stay low and the economy will avoid a downturn, Mark Zandi, chief economist at Moody's Analytics, said. If the monthly pace were to sink below that level for a sustained period, the unemployment rate would likely rise.
“Once the unemployment rate notches higher, that's when a recession becomes a real threat," Zandi said.
Before the viral outbreak struck China, shutting factories and causing shortages of parts and final products for U.S. manufacturers and retailers, the economy was expanding at a steady pace. Annual growth was 2.1% in the final three months of last year.
In 2019, employers added jobs at a pace of about 175,000 a month, slightly slower than in 2018 but enough to absorb new workers and lower the unemployment rate over time.
A pickup in housing sales has supported growth, with ultra-low mortgage rates helping more buyers afford a purchase. And consumer spending, fueled by solid pay increases, has lifted online retailers, restaurants, and the broader economy.
The timeliest gauge of layoffs is the government's weekly report on applications for unemployment benefits. People who are laid off are eligible for the aid.
The latest data, issued Thursday, was reassuring: It showed that the number of people seeking unemployment benefits dropped 3,000 to 216,000 in the week that ended Feb. 29. That is roughly the same as the average over the past month and is a very low level historically.
The job market appears resilient for now according to several gauges. Sinclair said that Indeed's data shows that companies have yet to cut their job postings, evidence that they are still willing to hire.
And on Wednesday, payroll processor ADP said companies added a healthy 183,000 jobs in February. That figure was likely boosted, though, by unseasonably warm weather that spurred hiring in construction and a category that mostly includes restaurants and hotels.
Should coronavirus worries start to depress consumer and business confidence, a broader pullback in spending and hiring could then weaken the economy.
So far, that evidence is mixed. A consumer confidence survey by survey research company Morning Consult has already shown clear declines. But a separate survey of small businesses by the National Federation for Independent Business found that about one-fifth of small companies in February planned to add jobs, unchanged from the previous month.
A survey of the Fed's business contacts released Wednesday, known as the Beige Book, found that half the bank's 12 districts were reporting consequences from the coronavirus. The Philadelphia Federal Reserve reported fewer tourist groups from China and said many of the city's Asian restaurants and shops had reported declining foot traffic because of unfounded fears over the virus.
Carl Tannenbaum, chief economist at Northern Trust, said the scope of the outbreak remained the most important trend he would monitor. For now, its impact on the United States has been limited. But if it spreads more widely, it could lead to cancellations of major events, including sports and tournaments, as has already happened in Japan and Europe.
“Can you imagine what that would do to Opening Day in baseball?” Tannenbaum asked. “If replicated in the United States, it would raise the risk of recession substantially.”