Job creation slowed in February but was still stronger than expected despite the Federal Reserve’s efforts to slow the economy and lower inflation.
Nonfarm payrolls rose by 311,000 in the month, the Labor Department reported on Friday. That was above the Dow Jones estimate of 225,000 and suggests the job market is still hot.
The unemployment rate rose to 3.6%, beating expectations of 3.4%, while the labor force participation rate rose to 62.5%, its highest level since March 2020.
The survey of households used by the Bureau of Labor Statistics to calculate the unemployment rate showed a slight increase of 177,000. A broader measure of unemployment, which includes discouraged workers and those working part-time for economic reasons, rose 0.2 percentage points to 6.8%.
There was also good news on the inflation side, as average hourly earnings rose 4.6% from a year ago, below estimates of 4.8%. Month-on-month growth of 0.2% was also below forecasts of 0.4%.
While the jobs numbers were stronger than expected, growth in February slowed from an unusually strong January. The year opened with nonfarm payrolls rising 504,000, down slightly from the 517,000 initially reported. The December total also fell slightly to 239,000, down 21,000 from the previous estimate.
Stocks were mixed after the issue, and Treasury yields were mostly lower.
“Mixed is a very apt descriptor. There’s something for everyone,” said Liz Ann Saunders, chief investment strategist at Charles Schwab. “We’re still in a recession for some parts of the economy.”
The jobs report is likely to keep interest rates on track when the Fed meets again on March 21-22. But traders underestimated the odds of a central bank hike of 0.5 percentage points to 48.4%, or a penny flip, according to CME Group estimates.
“Perhaps the best news from this report was the easing of wage pressures,” said John Lynch, chief investment officer at Comerica Wealth Management. “The biggest cost reduction for businesses is welcome. However, 50 basis points is still on the table for the March policy meeting, depending on recent economic strength and next week’s spending. [consumer price index] account”.
Leisure and hospitality led employment gains by 105,000, in line with the six-month average of 91,000. Retail saw a gain of 50,000. Government added 46,000, and professional and business services rose 45,000.
But jobs fell by 25,000 on the news, while transportation and warehousing lost 22,000 jobs in the month.
“It’s no longer accurate to say the labor market is a bright spot in the economy. From 35,000 feet, the picture still looks sterile, but when you dig an inch below the surface, there are clear pockets of softening,” said Aaron Terrazas. , chief economist at job review site Glassdoor.
Terrazas noted that hiring in “risk-sensitive” sectors has slowed. He added: “The challenge for policymakers is that these weaknesses are a small part of the overall economy, but there may be linkages that are yet to emerge.”
The jobs report comes at an important time for the US economy, and therefore for Fed policymakers.
The central bank has raised its benchmark interest rate eight times over the past year, raising the federal funds rate to a range of 4.5%-4.75%.
As inflation data cooled towards the end of 2022, markets expected the Fed in turn to slow the pace of rate hikes. That was in February, when the Federal Open Market Committee approved a 0.25 percentage point increase and signaled smaller increases to come.
However, Fed Chairman Jerome Powell told Congress this week that the latest readings show inflation has picked up again, and if that continues, he expects rates to rise higher than previously expected. Powell cited a “very tight” labor market as the reason rates will continue to rise and go higher.
He also said the increase could be higher than the increase in February.
While Powell noted that no decision has been made on 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 the inverted yield curve that has preceded all recessions since World War II.
Correction: The unemployment rate rose to 3.6%, higher than expectations of 3.4%. In the previous version, the direction regarding the price was distorted.
