In February, job creation exceeded expectations, with nonfarm payrolls growing by 275,000, according to the Labor Department’s Bureau of Labor Statistics. However, the unemployment rate rose to 3.9%, higher than anticipated by economists surveyed by Dow Jones, who had predicted a payroll growth of 198,000.
The month showed stronger growth compared to January, which underwent a significant downward revision from the initially reported 353,000 to 229,000. Additionally, job growth in December was revised down to 290,000 from 333,000. Consequently, the combined total for the two months was 167,000 fewer jobs than initially reported.
Despite the increase in the unemployment rate, the labor force participation rate held steady at 62.5%, while the “prime age” rate increased slightly to 83.5%. However, the household survey indicated a decline of 184,000 in the number of employed individuals.
Average hourly earnings, an important inflation indicator, showed a slightly lower-than-expected increase of 0.1% for the month, with wages up 4.3% from a year ago. This marks a deceleration from the 4.5% gain in January and is slightly below the 4.4% estimate.
Following a slip in January, the average workweek rebounded to 34.3 hours, an increase of 0.1 percentage point.
These job figures are likely to influence the Federal Reserve’s decision on interest rates later this year, although the exact timing and extent of any rate cuts remain uncertain.
Job creation in February showed a skew towards part-time positions, with full-time jobs decreasing by 187,000 while part-time employment rose by 51,000, as reported by the household survey. The alternative jobless measure, which includes discouraged workers and those holding part-time jobs for economic reasons, increased slightly to 7.3%.
In terms of sectors, healthcare led the way with 67,000 new jobs, followed by significant contributions from the government (52,000), restaurants and bars (42,000), and social assistance (24,000). Other sectors that saw gains included construction (23,000), transportation and warehousing (20,000), and retail (19,000).
This report arrives amidst market apprehensions regarding the broader economy’s growth trajectory and its potential impact on monetary policy. Futures trading saw slight movements following the report, with traders now pricing in a higher likelihood of an initial Fed interest rate cut in June.
According to Dan North, senior economist at Allianz Trade Americas, the report doesn’t provide much new information, aside from confirming ongoing job growth and slightly elevated wages. He believes this report is unlikely to alter the Fed’s narrative, although he anticipates the first rate cut may not occur until July.
In recent communications, Fed officials have given mixed signals, acknowledging cooling inflation but suggesting it hasn’t eased enough to warrant the first interest rate cuts since the early days of the Covid pandemic crisis.
Fed Chair Jerome Powell described the labor market as “relatively tight” but noted progress towards better balance from previous imbalances where job openings outnumbered available workers by a significant margin.
Despite high-profile layoffs, particularly in the tech industry with companies like Cisco, Microsoft, and SAP announcing substantial reductions in their workforces, job creation has remained robust. Outplacement firm Challenger, Gray & Christmas reported this February as the worst for layoff announcements since 2009, during the late stages of the global financial crisis.
However, job seekers continue to find opportunities, as job openings remained nearly unchanged in January at nearly 9 million, outnumbering the unemployed by 1.4 to 1. Weekly jobless claims have seen minimal fluctuations, with continuing claims passing 1.9 million and the four-week moving average hitting its highest level since December 2021.
Amidst these mixed signals, market expectations for Fed rate cuts have been tempered. Futures market traders now anticipate the first reduction in June, down from earlier expectations of March, and forecast a total of four cuts this year, compared to six or seven previously projected, according to CME Group data.
