Job creation slowed in February but was stronger than expected despite the Federal Reserve’s efforts to slow the economy and reduce inflation.
The Labor Department reported on Friday that non-farm payrolls increased by 311,000 for the month. This was above the Dow Jones estimate of 225,000 and a sign that the job market is still hot.
The unemployment rate rose to 3.6% from an expected 3.4%, amid a rise in the labor force participation rate to 62.5%, its highest level since March 2020.
The survey of households, which the Bureau of Labor Statistics uses to calculate the unemployment rate, showed a smaller increase of 177,000. A more comprehensive unemployment measure that includes discouraged workers and those holding part-time jobs for economic reasons rose 0.2 percentage points to 6.8%.
There was also some good news on the inflation side, as average hourly earnings rose 4.6% from a year earlier, down from the 4.8% estimate. The monthly increase of 0.2% was also below the 0.4% estimate.
Although the jobs number was stronger than expectations, February’s growth represented a deceleration from an unusually strong January. The year began with a non-farm payrolls gain of 504,000, which was only slightly revised down from the initially reported 517,000. December’s total also decreased 21,000 from the previous estimate to 239,000.
stocks were mixed After release, while Treasury yields were mostly lower.
“Mixed is an apt descriptor. It has something for everyone,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “We’re still in a recession for parts of the economy.”
The jobs report is likely to keep the Fed on track to hike interest rates when it meets again on March 21-22. Traders rated lower the likelihood that the central bank will accelerate growth by 0.5 percent, with the probability falling to 48.4%, or about a coin flip, according to estimates from CME Group.
“Perhaps the best news from this report was the easing of wage pressure,” said John Lynch, chief investment officer at Comerica Wealth Management. “The drop in the biggest cost for businesses is a welcome development. Nevertheless, 50 basis points are still on the table for the March policy meeting, given the recent economic strength and the reliance on costs for next week. [consumer price index] report.”
Employment gains due to leisure and hospitality increased by 105,000, in line with the six-month average of 91,000. Retail saw a gain of 50,000. The government added 46,000, and professional and business services saw an increase of 45,000.
But information-related jobs declined by 25,000, while transportation and warehousing lost 22,000 jobs for the month.
Aaron Terrazas said, “It’s not without reservation to say that the labor market is a bright spot in the economy. From 35,000 feet, the picture still looks great, but digging an inch below the surface there are obvious spots of softness.” ” Chief Economist for the jobs review site Glassdoor.
Terrazas said hiring has been slow in “risk-sensitive” sectors. He added that, “the challenge for policymakers is that these weak points are a small part of the overall economy, but there are potentially hidden links that have not yet been revealed.”
The jobs report comes at a critical time for the US economy, and consequently for Fed policymakers.
Over the past year, the central bank has raised its benchmark interest rate eight times, taking the federal funds rate to a range of 4.5%-4.75%.
As inflation data appeared to cool down towards the end of 2022, markets expected the Fed to in turn slow down the pace of its rate hikes. That happened in February, when the Federal Open Market Committee approved a 0.25 percent increase and indicated smaller increases would be the case going forward.
However, Fed Chairman Jerome Powell told Congress this week that recent metrics show inflation is on the way back, and that if that continues to be the case, he expects rates to rise to higher levels than previously thought. Powell specifically noted the “extremely tight” labor market as a reason rates are likely to continue to rise and stay high.
He also indicated that the hike could be higher than the February hike.
Although Powell emphasized that no decision has been made for the March FOMC meeting, markets shrugged off his comments. Stocks sold off sharply, and the gap between 2- and 10-year Treasury yields widened, a phenomenon known as an inverted yield curve that preceded all post-World War II recessions.