Takeaways from the February jobs report

February’s employment statistics showed that the labor market remained strong, with job growth exceeding expectations in a cold labor market.

The unemployment rate rose to 3.9% in February, the highest level in more than two years, threatening to end the longest streak of unemployment below 4% since 1969.

The downward revisions for December and January also showed that the pace of job growth was more consistent than previously expected.

Still, the economy added 275,000 jobs in February, beating consensus expectations by about 200,000, demonstrating the strength of the labor market and the broader economy.

The Labor Department announced Friday that December nonfarm payrolls were revised downward from 333,000 to 290,000, while January’s payrolls unexpectedly rose from 353,000 to 220,000. The figure has been revised downward to 9,000 people. The combined revisions for these months resulted in payrolls 167,000 fewer people than previously reported.

Average hourly wages rose just 0.1% (5 cents) from the same month to $34.57 per hour.

“Nominal wage growth remains modest,” said Elise Gould, an economist at the Economic Policy Institute, a left-leaning think tank in Washington, in an analysis.

“Private sector wage growth rose modestly at an annualized rate of 1.8% over the same month. The three-month change was an annualized rate of 4.0%, consistent with inflation and productivity growth. Please note: This is not a hot labor market.”

The rise in unemployment is likely to be good news for the Federal Reserve, which has been trying to weaken the labor market by raising interest rates in response to high inflation.

Economists and market commentators pointed to healthy job growth in Friday’s report.

sector breakdown puzzle

The largest employment increases in January were in the services sector, with health and social assistance adding 90,000 jobs and leisure and hospitality adding 58,000. 52,000 government jobs were added.

But even though the Biden administration has invested heavily in manufacturing in preparation for the green transition, manufacturing jobs actually fell in January, a fact that some economists are concerned about. confused.

“One of the puzzling numbers in the report was 4,000 people. [decrease] in manufacturing employment. Despite massive public investment in domestic manufacturing construction since the pandemic, manufacturing employment has remained flat like a pancake over the past 18 months,” said Julia Pollack, chief economist at ZipRecruiter. mentioned in the analysis.

Analysts disagree on what the future holds for the job market

Friday’s jobs report was mixed, showing both rising unemployment and solid employment growth, with some market commentators at odds over where the labor market is headed.

“Nonfarm payrolls in January were revised downward from 353,000 to just 229,000, and December data was also revised downward. This suggests that January data should be seen as the beginning of a trend. It helps reinforce the message that this is not the case,” GlobalX ETF strategist Michelle Kluber said in a statement.

Other commentators see January’s data as the beginning of an overall slowdown in the labor market.

“We expect job growth to slow between now and early 2025 as GDP slows.” [gross domestic product] growth. Even without a recession, a slowdown in economic growth of 1% to 1.5% would be enough to halt job growth, given strong productivity growth,” Morningstar economists said. , said Preston Caldwell.

The labor market has shown surprising strength throughout the recovery from the pandemic, defying repeated predictions that unemployment would rise significantly. The Fed predicted a recession last year, but has since revised its outlook.

The fight against inflation is going well

Since inflation began after the pandemic, the rate has fallen dramatically, with the annual growth rate of the personal consumption expenditure price index falling to 2.4%.

The decline comes in the wake of one of the Fed’s fastest interest rate hike cycles in history, as well as a general return to economic normalcy after pandemic shutdowns and trillions of dollars in stimulus.

Federal Reserve Chairman Jerome Powell visited Capitol Hill this week and said the labor market was reaching a “better balance,” suggesting that employment costs were having less impact on prices. .

“The labor market remains tight and remains strong. Wages are rising. The labor market is becoming more balanced between supply and demand, and inflation has fallen significantly since the middle of last year. ” he said.

More room for cutting

Financial markets, which are at record highs on the back of soaring corporate profits, are waiting for clues about when the Fed will start cutting interest rates.

Rising unemployment could give the Fed more room to cut rates this year, but the market doesn’t expect them to do so at its next rate-setting meeting this month.

As of Friday morning, there was a 97% chance the Fed would leave rates unchanged at its March meeting, according to CME FedWatch’s predictive algorithm. Many analysts expect the Fed to begin lowering rates at its June meeting, but Fed officials are looking for further evidence that inflation is completely over before they begin lowering borrowing costs. states that it is necessary to do so.

“The continued resilience of the labor market provides some protection against further declines in mortgage rates in the near term, as the Fed is less likely to cut rates in a hurry,” said Joel Kang, an economist at the Mortgage Bankers Association. This is one of the factors,” he said in the commentary.