Employment in the private sector rose by 198,000 jobs in February, according to payroll giant ADP, fueled by a long-awaited rebound in the construction industry and healthy increases in a broad array of other sectors.

ADP also revised upward Wednesday its January 2013 report of 192,000 jobs by 23,000 jobs, for a total of 215,000 jobs (see ADP Sees 192,000 Private Sector Jobs Added in January).

“It was a solid report,” said Mark Zandi, chief economist with Moody’s Analytics, which produces the monthly employment reports with ADP. “Almost 200,000 private sector jobs were created in the month of February. It feels like underlying job growth continues to improve. At the current pace, this should be enough to start bringing down unemployment.”

He noted that 100,000 to 125,000 jobs need to be added per month in a normal economy for a stable rate of unemployment, so if the current rate of job growth continues, it should result in lower unemployment. In a “rip-roaring economy,” in contrast, approximately 300,000 jobs per month would be created.

“We’re not quite there yet,” Zandi added. “We’re not in full swing, but we’re moving in the right direction steadily, but surely.”

Broad-based Growth
Jobs gains occurred in businesses of every size in February. Small businesses with 1 to 19 employees added 77,000 jobs, while small businesses with 20 to 49 employees added 29,000 jobs. Midsize businesses with 50 to 499 employees added 65,000 jobs, while large businesses with 500 to 999 employees gained 23,000 jobs. Larger businesses with 1,000 or more employees added 34,000 jobs in February to their payrolls.

The job gains also occurred across a variety of different types of businesses. Good-producing businesses added 34,000 jobs in February, while service-providing businesses added 164,000 jobs.

Gains were especially strong in professional and business services, which added 35,000 jobs, and the construction industry, which added 21,000 jobs in February. The combined trade, transportation and utilities sector gained a total of 45,000 jobs in February. There were more modest gains in the financial activities sector, which added 7,000 jobs, and manufacturing, which increased by 9,000 jobs.

“The job gains are increasingly broad based across the country” Zandi noted. “Most encouraging is what’s happening in the housing and real estate markets, which are turning quite quickly. Construction has gone from being a major drag on the economy as recently as a year ago to now being a pretty consistent source of growth. I think that will continue as we make our way through the year, particularly as we move to 2014 and 2015. That’s how we jump from 200K a month [jobs added] to 300K and something above that.”

The ADP data indicates that the recovery is occurring across a variety of business sizes. “Earlier on in the recovery, the bulk of the job growth was happening at large companies with 500 or more or over 1,000 employees, the big multinationals, and they’re still doing quite well. They’re still adding to payrolls, the and of course the run-up in stock prices to a record high is one suggestion of how well they’re doing. But the good news is that smaller businesses are now adding fairly consistently to payrolls. Things aren’t off and running yet, but over the past year we are seeing job growth in very small businesses with less than 20 employees actually adding to payrolls in a way that’s consistent with employment gains in other business sizes. That’s also very encouraging. It probably is related, at least in part, to what is going on in the housing and construction cycles. The job growth is steadily improving, and it’s increasingly broad-based.”

Among small businesses with 1 to 49 employees, 16,000 jobs were gained in the goods-producing industry and 60,000 in the service sector. For small businesses with 20 to 49 employees, the goods-producing sector added 4,000 jobs, while the service-providing sector added 25,000.

Sequester Effect
Zandi noted that no major sectors or industries are currently reducing payrolls, with the exception of government jobs, where layoffs are likely as a result of the budget sequester in Washington.

“I would be surprised if we don’t see some slowing in job growth as we make our way through the summer into the fall months,” he said. “Fiscal policy is now a very significant headwind to economic growth, and that headwind is going to blow a lot harder as we move through the summer into the fall. The sequester is part of it. We’ve been engaged in fiscal austerity now for a little over two years since Simpson-Bowles released their report in late 2010. If you add up all the spending cuts, and now we have some tax increases, it’s quite sizable, and the apex of that headwind—when it’s going to be blowing the hardest—is probably going to be in Q3 of this year. I would be surprised if that doesn’t show up in the form of somewhat slower job growth.”

He said he would not be surprised if job growth dips to 125,000 or as low as 100,000 a month in the third quarter.

“I think the economy will navigate through it and continue to create jobs, but at a slower pace and it will feel a little uncomfortable,” said Zandi. “I think there will be some handwringing around the impact of fiscal policy on the economy at that point. I do think we’ll make it to the other side of this, and by this time next year, the fiscal headwinds will begin to fade. There will still be headwinds, but just not blowing quite as hard. That’s when the housing market will be in full swing, and we’ll be off and running. I’m very optimistic about 2014, particularly as we move into the mid-part of the year and into 2015. But we have to get from here to there. For the moment, the job market is doing quite well, consistent with the run-up in stock prices.”

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