U.S. employment exploded in February while wage growth slowed, showing a robust labor market that likely is aligning with the Federal Reserve intentions to raise interest rates this month and offering some relief from a strong inflationary sentiment.
A Labor Department report showed NFP (Nonfarm payrolls) increased 678,000 last month (the most since July 2021) after upward revisions in the prior two months. The advance was broad-based across sectors. The unemployment rate decreased to 3.8 per cent, and average hourly earnings didn’t reflect significant changes from the prior month.
“The labor market is extremely strong“
Central Bankers Assessment.
“If the recovery can keep up its current tempo, several key indicators of labor market health will hit pre-pandemic levels this summer,” Nick Bunker said.
The median estimate in a survey of economists called for a 423,000 advance in payrolls and for the unemployment rate to fall to 3.9 per cent. While a Fed rate hike later this month was a foregone conclusion before the payrolls data, the report reinforced recent central bankers’ assessment that the labor market is extremely strong. Employers have added at least 400,000 jobs each month since May against the backdrop of a rapid bounce back of the economy.
Friday’s report showed average hourly earnings were little changed in February and up 5.1 per cent from a year ago, a deceleration from the prior month, while hours worked picked up slightly. The disappointing wage data are even worse after accounting for faster inflation. With price increases outpacing growth in compensation that effectively means many workers are taking a pay cut.
“Such a low print does serve as a reminder that wages won’t necessarily continue to rise at a very rapid pace if labor supply continues to increase,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said.
Traders focused on the flat average hourly earnings figure, sending the yield on the 10-year Treasury note down. The S&P 500 opened lower as war jitters overshadowed the jobs figures.
The hourly earnings number was considered the most important among traders, which sent the down the 10-year Treasury note. Also the S&P 500 was affected with a much lower opening level at 4326.9 today. 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. He said he favors a 25 basis-point increase to kick off an expected series of hikes this year.
62.3% LABOR FORCE PARTICIPATION RATE
The share of the population that is working or looking for work reached up to 62.3 per cent, and the rate for workers ages 25-54 rose to the highest since March 2020. Even though it has improved, a combination of factors like child care challenges, COVID-19 concerns and early retirements have whittled down America’s workforce. Before the pandemic, the overall rate was over a percentage point higher.
Some of the sectors hit hardest by the pandemic saw strong job gains in February, including restaurants and health care. Professional and business services also advanced, while construction payrolls gained by the most since March. President Joe Biden recognized the strength of recent job and wage gains in his State of the Union address earlier this week but emphasized how inflation is “robbing” Americans of feeling much of those gains. On Thursday, March 10th; the February CPI (consumer price index) is expected to show that year-over-year inflation accelerated to nearly 8 percent.
In testimony to lawmakers on 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.
