For the second month in a row, nonfarm payroll data reported by the Bureau of Labor Statistics as part of their monthly Employment Situation Report was underwhelming. The U.S. economy gained 379,000 jobs (SA) in February 2021, coming on the heels of a disappointing January. (In retrospect, January wasn’t as disappointing as initially reported: The 49,000 job gains reported in the first release of January 2021 data were revised upward to 166,000.) Trucking firms lost 4,000 jobs (SA), though that is probably overstated by about 1,500 due to weather-related distortions and weather-adjusted job losses in the trucking industry were closer to 2,500. (Revisions also flipped trucking industry employment in January 2021 from an initially reported 2,900 net loss, to an 800 net job gain.)
Some caution is necessary in interpreting today’s data — particularly the 61,000 construction sector job losses. Winter storms across much of the country in mid-February clearly weighed on the labor market, potentially to the tune of tens of thousands of jobs. These weather effects are transitory, so any long-term implications of today’s report should be read with due caution.
Extreme weather events like Winter Storm Uri — which crippled much of the United States, particularly in the Midwest and South, last month — are not captured by conventional seasonal adjustment and can substantially distort the real-time interpretation of economic data. The sophisticated seasonal adjustment methods used by official statistics agencies are designed to capture the “normal” monthly (or quarterly, or weekly, etc.) movements, including some degree of gradual evolution in what is “normal” over time. But they are not designed to account for the freak weather experienced in February 2021.
Major weather events such as snow storms, hurricanes, floods and wildfires are associated with delays in hiring and onboarding new workers, and temporarily slimmer payrolls in sectors where workers are commonly hired on short term contracts (e.g., construction) or where unpaid leave is the norm (e.g., food service and accommodation). Standard approaches to seasonal adjustment will capture some of these fluctuations (e.g., the typical impact of recent hurricanes in late summer months), but will not capture outlier events.
These weather effects above and beyond “normal” seasonality can be substantial. According to a 2016 analysis published by the Brookings Institution, accounting for weather effects can shift the monthly payroll number by 100,000 in either direction. A shift of that magnitude is particularly important when it changes our overall read on the state of the economy: For example, according to the same Brookings study, weather adjustment would have increased the estimated pace of employment growth during the winters of 2013-14 and 2014-15, a period of broad-based concerns that the U.S. economy recovery was faltering.
The week that the February 2021 Current Employment Situation data was collected, more than one-in-five Americans were in an area experiencing “major” snowfall according to the National Oceanic and Atmospheric Administration’s Snowfall Impact Scale. (The data does not cover the roughly one-third of the country west of the Continental Divide.) We conservatively estimate that Winter Storm Uri subtracted about 60,000 jobs from the headline February employment number based on regional snowfall data; in more extreme models based on heating degree days, the effect could be as large as 290,000 jobs. For the trucking industry, we estimate that effect was on the order of 10,000 fewer jobs due to weather effects. (The baseline estimate is “conservative” since it accounts only for the effects of unseasonably large snowfalls, not the downstream effects of utility outages.)
Looking beyond February, we can expect the weather-related distortions to continue into March as communities recover and rebuild from the physical damage associated with the storm, artificially inflating job gains. Data outliers will also echo well into the future as inputs into estimates of seasonal factors in the coming years (unless BLS decides to exclude them, which they occasionally do).
A final complication is how the effects of weather events on payroll employment interact with the boom in remote work sparked by the Covid-19 pandemic. Major weather events that do not adversely affect physical safety or utilities likely had a bigger negative effect on employment in the past when most office workers commuted daily. But with remote work now more common — 37% of households reported that an adult had substituted typical in-person work for remote work as a result of the pandemic, according to the Census Bureau’s most recent Household Pulse Survey — weather events might be somewhat less disruptive to the labor market than in the past.
In the longer-term, global climate change will challenge all of us who make business decisions based on economic data to think more critically about what exactly to read from the monthly tea leaves. “Normal” seasonality will become less common, making it all the trickier to disentangle signal amid the data snowfall. According to the BLS: “Persons on establishment payrolls who are on paid sick leave (for cases in which pay is received directly from the firm), on paid holiday, or on paid vacation, or who work during a part of the pay period—even though they are unemployed or on strike during the rest of the period—are counted as employed. Not counted as employed are persons who are on layoff, on leave without pay, or on strike for the entire period, or who were hired but have not yet reported during the period.”  The BLS’ Current Employment Statistics survey is designed to capture the state of the labor market during the pay period including the 12th of the month. For February 2021, that approximately covered the week from February 7th-13th. Winter Storm Uri was active from February 13th-17th, though many parts of the country were already experiencing its effects, as well as the lingering effects of winter storms from prior weeks, well before then.  There is some variation in the precise dates covered across business — since individual establishments may operate on weekly, semi-monthly, monthly or other payroll schedules — but a reasonable approximation is to assume that it covers the week including the 12th of the month.
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