U.S. job growth was slow in February but U.S. unemployment rose. It is likely that this strong labor market will keep the Federal Reserve on course to increase interest rates for March, and also provide some relief from inflationary pressures.
Nonfarm payrolls increased 678,000 last month—the most since July—after upward revisions in the prior two months, a Labor Department report showed Friday. It was spread across many sectors. Average hourly earnings decreased by 0.2% from previous month, while the unemployment rate fell to 3.8%.
According to a Bloomberg Survey of Economists, the median estimates called for a 423,000 increase in payrolls and a 3.9% drop in unemployment.
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The employment report — the last the Fed will receive before its March 15-16 meeting — highlights a steadily improving, though extremely tight labor market. Although declining Covid cases, looser restrictions, and increased hiring likely contributed to the increase, it is still difficult for employers to fill near-record vacancies. This makes it hard to satisfy resilient demand from both households and businesses.
Supply is expected to remain at a premium, which will limit the rate of job growth. It could also put downward pressure on wages. Friday’s report showed average hourly earnings were little changed in February and up 5.1% from a year ago, a deceleration from the prior month. On average, the workweek lasted 34.7 hours.
The flat hourly average earnings number was the focus of traders, which sent the yield on the 10-year Treasury bond lower. S&P 500 futures remained lower.
Even though wage growth lagged expectations, strong hiring and the lower unemployment rate support the Fed’s plan to raise rates this month. Chair Jerome Powell reaffirmed that plan this week after Russia’s invasion of Ukraine, which has led to a surge in oil, metals and grain prices and clouded the U.S. economic outlook. For the start of a year’s expected rises, Powell said he favours an increase of 25 basis points.
Participation Rate
The labor force participation rate—the share of the population that is working or looking for work—ticked up to 62.3%, and the rate for workers ages 25-54 rose to the highest since March 2020. While improved, a combination of factors like child care challenges, Covid-19 concerns and early retirements have whittled down America’s workforce. The overall rate of unemployment was almost a percentage higher before the pandemic.
In testimony to lawmakers Wednesday, Powell noted the decline in labor force participation is “certainly something that’s now contributing to wage inflation and actual inflation and to the labor shortage that we’re currently seeing.” He also said the U.S. is “at least” at maximum employment, defined as the highest level that’s consistent with price stability.
Restaurants and healthcare were two of the hardest hit sectors by the pandemic. However, there was strong employment growth in February for some of these industries. Construction payrolls saw the largest increase since March, and professional services and business services were also on the rise.
— With assistance from Olivia Rockeman, Chris Middleton, Sophie Caronello and Liz Capo McCormick.
