In a sign that the U.S. labor market is still chugging along, payrolls rose more than expected in February, as employers added 311,000 jobs, well above expectations of 225,000, the Bureau of Labor Statistics reported Friday. Although growth was weaker than in January, when the economy generated a massive 504,000 jobs, February was the 11th month straight in which employment growth exceeded expectations.
Wage growth continued, too, though the pace appears to be easing, with average hourly wages rising 0.2% from the prior month, the smallest increase in a year. Wages were up 4.6% on a 12-month basis, well above the pre-pandemic trend but lower than the increases seen last year.
At the same time, the unemployment rate rose from 3.4% to 3.6%, higher than expected though still exceptionally low. The increase was largely the result of more prime-age workers coming back into the labor market, with the labor force participation rate inching up to 62.5% – the highest level since the beginning of the Covid-19 pandemic in March 2020.
Sectors that were hit particularly hard by the pandemic, including restaurants, hotels and hospitals, have led the way in hiring in recent months as the economy continues its long slog toward something like normalcy. Those sectors of the economy that saw a boom earlier in the pandemic, including finance, tech and warehousing, have cooled, with layoffs becoming more frequent.
What the experts are saying: “The American economy continues to create an extraordinary number of jobs,” economist Jason Furman said in a tweet, noting that the three-month average for monthly job growth is now 351,000. “This does not look like anomalous data,” Furman added.
University of Michigan professor of economics Justin Wolfers agreed. “Holy smokes, another huge jobs report,” he tweeted. “Revisions slightly negative,” he added, referring to downward revisions in job growth of 13,000 for January and 21,000 for December, “but overall the economy is MOTORING.”
Still, while wage growth continued, it also continued to fail to keep up with inflation. “We have by every definition the tightest labor market in years and yet, it was the 23rd consecutive month in which wages did not keep pace with inflation,” David Kelly, chief global strategist at JPMorgan, told the Financial Times. “When push comes to shove, workers don’t have the bargaining power people think they have.”
Some economists say the trendlines point toward something like a soft landing for the economy. “Job gains this strong and unemployment this low might be concerning in the face of stubbornly high inflation, but there are signs that the labor market is heading toward a strong, stable, and sustainable pace of growth,” Nick Bunker of Indeed Hiring Lab said in a note.
Other analysts, though, say the report could push the Federal Reserve to bear down in its effort to slow the economy. “It’s much hotter than the economy can run, and so this means the Fed is going to have to continue to hike interest rates,” PNC Financial Services chief economist Gus Faucher told CNN. “And that makes a recession more likely.”
The bottom line: The February jobs report will likely influence the thinking of Fed officials as they mull their next interest rate hike later this month – an increase that some analysts think could be twice the size of the 25-basis-point hike announced at the previous meeting. However, today’s data sends something of a mixed signal, as wage growth shows signs of cooling, even as hiring remains strong. The ambiguity could push the Fed to stick with a steady approach, suggesting another small increase is likely.
“In absolute terms, employment is still strong and robust,” Ray Farris, chief economist at Credit Suisse, told the FT. “But from the perspective of the Fed, the trend is slow but down, and probably leans more in the direction of their desire to move incrementally.”