Minneapolis (CNN) The February jobs report had something for everyone.
There were jobs for workers; for employers, there were workers filling shortages caused by the pandemic; for the Federal Reserve, there were indications that the labor market was loosening and wage pressures were easing.
On the other hand, the total of 311,000 net added jobs was significantly higher than expectations of 205,000, and the unemployment rate surprisingly grew to 3.6%.
The report was a mixed bag at a time when the Fed — signaling a more aggressive approach this week following a strong string of recent economic data — is weighing whether to go lighter or heavier on rate hikes.
Here are some takeaways from Friday’s report:
January was no fluke and the job market remains strong
Economists expected January’s blockbuster net job growth of 504,000 to be an anomaly due to a combination of factors such as annual data adjustments, warm weather and employers hoarding workers.
But the US labor market showed in February that it was generally quite resilient to the Fed’s years-long barrage of rate hikes. The latest employment snapshot from the Bureau of Labor Statistics also showed only a slight downward revision to the January job total.
“This report isn’t about the Federal Reserve, it’s not about inflation, it’s about you; it’s about how workers are faring,” said Claudia Sahm, founder of Sahm Consulting and a former Fed economist. “And again, we had a month where we added jobs on the Internet, and this is really good for employees.”
There are also encouraging signs for employers, she said, noting that some of the biggest gains have been made in industries that have suffered the worst shortages since the pandemic.
The leisure and hospitality sector added 105,000 jobs in February, accounting for 34% of the entire month’s total profits and bringing the sector much closer to pre-pandemic levels. In February, the leisure and hospitality sector had 410,000 jobs, or 2.42%, fewer than in February 2020, according to a CNN analysis of BLS data.
“Right now, we are still in a phase of returning to normal in terms of no labor shortage, not that the cost of serving customers is rising and rising,” Sahm said. “I would much rather see us go back to normal with employees coming back, rather than customers leaving.”
Construction isn’t buckling, but some industries are
Despite the Fed’s succession of interest rate hikes over the past year, employment in the construction sector has not faltered. In February, the construction sector added 24,000 jobs, marking 12 consecutive months of job growth.
“Contractors continue to work on existing backlogs that have grown over the past two years as new opportunities emerged and supply chain issues extended construction timelines,” wrote Nick Grandy, senior construction and real estate analyst at RSM US.
Notable sectors that recorded job losses during the month were information, where an additional 25,000 jobs were lost (-0.8%); transportation and storage, down 21,500 jobs (0.3%); and production, which lost 4,000 positions.
While overall job numbers and relatively minimal losses are generally strong, there is some indication of a pullback in all sectors. The BLS’s employment diffusion index, which measures the percentage of 250 industries that added jobs, fell to 56, its lowest reading since April 2020.
“That indicates that the impact of high interest rates is spilling over to more industries,” said Julia Pollak, chief economist at ZipRecruiter.
Also appeared a ‘little slack’
The labor market has remained extremely tight and unbalanced over the past three years. Friday’s report found that “a little slack was creeping back in the job market,” Wells Fargo economists Sarah House and Michael Pugliese wrote.
The unemployment rate rose from 3.4% to a 53-year low of 3.6% to 3.6%. That increase was due in part to more people returning to work and joining the unemployed, which the BLS classifies as unemployed people who are actively looking for work.
The February employment report showed an increase in the employment rate by 0.1 percentage point to 62.5% – the highest since April 2020.
The average workweek ticked back to 34.5 hours from a revised 34.6 hours, indicating a “significant overall decline” in labor demand, said Brad McMillan, chief investment officer for Commonwealth Financial Network.
Still, with the prime-age employment-to-population ratio rising to 80.5% — similar to early 2020 levels — there may be little room left for continued growth in employment, according to Matt Colyar, an economist at Moody’s Analytics. labor supply.
“February’s figure, apart from early 2020 measurements, is higher than at least during the previous decade-long expansion,” Colyar noted. “Even in corners of the economy where demand has slumped, companies have shown little desire to lay off workers en masse. While other sectors continue to rapidly hire, an acceleration in wage growth remains a looming threat.”
Progress on the soft landing front
A weakening average hourly wage helps fuel hopes of a soft landing.
At 0.2% month-on-month, wage growth was below expectations and stood at 4.6% year-on-year.
“There were signs in today’s report that inflation progress can be made without torpedoing employment,” Wells Fargo economists noted.
As of February, annualized wage growth for the past three months was just under 3.6%, a pace observed when inflation was below the Fed’s target, said economist Dean Baker, cofounder of the Center for Economic and Policy Research.
“Perhaps most important from a Fed perspective is the slowdown in wage growth,” Baker wrote in a statement. “The annual rate of 3.6% over the past three months can hardly be seen as a serious threat to inflation. This slowdown in average hourly wages, coupled with the 4% rate reported in the fourth quarter Employment Cost Index , should provide solid evidence that wage growth has slowed sharply.”
What this means for the Fed
A hot streak of economic data for January helped push the Fed into a more aggressive turn. Fed Chairman Jerome Powell told members of Congress this week that the Fed is willing to increase the pace of its rate hikes if warranted.
“The latest economic data is stronger than expected, suggesting that the eventual interest rate level will likely be higher than previously expected,” Powell told lawmakers.
More data is coming before the Fed meets for its two-day policy meeting on March 21 and 22, notably the Consumer Price Index, the Producer Price Index and the Department of Commerce’s retail sales report. But Friday’s jobs report is unlikely to lead to a more dovish turn from the Fed, said Sean Snaith, an economist and director of the University of Central Florida’s Institute for Economic Forecasting.
“We haven’t gone from a four-alarm fire to a five-alarm fire with this data report, but the inflationary flames haven’t gone out either,” he wrote in a note Friday. “And nothing today indicates that the Fed should change its more aggressive approach to raising interest rates.”
Still, economist Gregory Daco cautioned that the Fed should not fall into the trap of confirmation bias by letting stronger-than-expected economic data skew the analysis of Friday’s jobs report and next week’s CPI report.
According to Daco, chief economist at EY Parthenon, the Fed could see the low unemployment rate and strong job growth as fuel for wage growth.
“However, our view is that slower job growth in the goods sector, reductions in hours worked and moderating sequential wage growth momentum and an increase in the labor force participation rate point to a welcome easing of labor market tightness,” Daco noted. “While we acknowledge that this report was by no means weak, we also note that some of the job growth has occurred in sectors where there has been a structural underemployment – particularly health care and education. Employment in those sectors may not have been thus indicative of cyclical wage pressures, but rather an easing of structural constraints.”
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