February Jobs Growth Exceeds Expectations

U.S. employers added more jobs than economists expected last month, highlighting the labor market’s resilience amid a thawing economy, as the Federal Reserve raises interest rates to cool inflation.

U.S. employers added 311,000 jobs in February, the Bureau of Labor Statistics (BLS) reported Friday. That figure was well above projections of 205,000, and compared with a downwardly-revised gain of 504,000 in January. 

The unemployment rate ticked higher to 3.6% from a 53-year low of 3.4% in January, with the number of unemployed individuals little changed at 5.9 million. The labor force participation rate, which measures the share of the labor force either employed or looking for work, edged up to 62.5%, while the employment-to-population ratio held steady at 60.2%.

The stronger-than-expected payroll gain could complicate the Federal Reserve’s efforts to cool the economy by raising interest rates, and push policymakers to consider more aggressive rate hikes at the Fed’s next meeting later this month and over the upcoming months.

Gains by Sector

As has been the case throughout most of the pandemic recovery, job gains were led by the leisure and hospitality sector, which added 105,000 new jobs, with a gain of 70,000 at restaurants and bars. Despite recent gains, employment in the sector is still 2.4% below its pre-pandemic level in February of 2020.

Employment in retail rose by 50,000, led by an increase of 39,000 at general merchandise stores. Government payrolls rose by 46,000, led by a gain of 37,000 in local government positions. Professional and business services added 45,000 jobs, while employment in health care rose by 44,000.

Sectors that shed jobs in February included the information industry (-25,000), and transportation and warehousing (-22,000). Employment in manufacturing, oil and gas extraction, wholesale trade, and financial activities was little changed from the previous month.

Slowdown in Wage Growth

Average hourly earnings for private sector workers rose just 0.2% last month, to $33.09, compared with a 0.3% gain in January. On an annual basis, they rose 4.6%, accelerating slightly from 4.4% in January.

Implications for Monetary Policy

The stronger-than-expected job gains could push the Fed to raise rates more aggressively at its next policy meeting. Markets are currently pricing in a nearly 50% probability that the Fed will raise interest rates by 50 basis points at the upcoming meeting of the FOMC on March 21-22, according to fed funds futures data collected by CME Group. Traders anticipate a terminal fed funds rate between 5.25% and 5.5% by July.

U.S. equity markets tumbled in early trading on Friday while bond prices rallied, with the yield on the 10-year Treasury note falling 18 basis points to 3.74%.