US jobs rose strongly again in February despite wage cuts, making the road harder for the Federal Reserve as it debates how much more the economy needs to contract to beat inflation.
The world’s largest economy added 311,000 jobs last month, more than the 225,000 jobs forecast by economists but less than January’s downwardly revised 504,000 jobs. Over the past three months, the monthly increase in jobs has averaged 351,000 people.
Despite gains in February, the unemployment rate rose to 3.6%, still close to a decades-old low. Meanwhile, wage growth rose 0.2 percent from January, slightly less than the previous monthly increase in average hourly wages and lower than expected. On an annualized basis, it is higher by 4.6 percent.
The February report is one of the most important data releases ahead of the Fed’s next policy meeting on March 21-22, playing a major role in whether the central bank resumes more aggressive rate hikes after a torrent of unexpectedly strong data.
IN congressional testimony This week, central bank chairman Jay Powell said he would take a close look at the numbers – along with inflation and other key data – to decide whether to forgo another quarter-point rate hike and opt for a half-point hike.
“In absolute terms, employment is still strong and resilient,” said Ray Farris, chief economist at Credit Suisse. “But from the Fed’s point of view, the trend is slow but down, and probably more in the direction of their desire to move gradually.”
Farris said the mixed report is now shifting focus to CPI data due Tuesday.
Treasuries increased their gains after the release of the data, suggesting that investors saw reasons for optimism in a smaller-than-expected rise in hourly earnings.
Treasury yields, which have been declining since Thursday amid concerns about US banks, fell further as investors bet on the Fed’s less aggressive policy. The two-year yield, which fluctuates with interest rate expectations, fell 0.28 percentage points to 4.62 percent.
Investor expectations that the Fed will return to a higher interest rate hike at its March meeting have eased and are now betting a slightly higher chance of a 0.25 percentage point hike.
“We have, by any definition, the tightest job market in years, and yet this was the 23rd consecutive month that wages have not kept pace with inflation,” said David Kelly, chief global strategist at JPMorgan. “When it comes to fighting, the workers don’t have the bargaining power that people think they have.”
In February Fed called time on the rise of giant rates and secured a more traditional quarter-point increase, repeatedly moving at intervals of half a point and three-quarters of a point last year. At the time, Powell justified the smaller rate hike on the grounds that it would “better enable” officials to track progress towards their goal of curbing inflation.
But continued labor market tensions since then and a resurgence in consumer activity since then have raised expectations for further policy developments.
Nancy Vanden Houten, lead US economist at Oxford Economics, said a half-point rate hike could not be ruled out, although that was not her base case.
She expects Fed officials to revise their estimates of the so-called terminal rate upwards later this month. In December, most officials supported the federal funds rate in the range of 5 to 5.25 percent. It currently fluctuates between 4.5 and 4.75 percent.
In February, the leisure and hospitality sector saw the biggest increase in employment, with job growth of 105,000. Retail jobs increased by 50,000 and professional and business services jobs increased by 45,000.
Despite the blow to the housing and commercial real estate market due to the rise in the cost of loans, 24,000 jobs appeared in the construction sector.
Manufacturing, as well as transport and warehousing, were among the few sectors that registered modest monthly growth or lost jobs.
The labor force participation rate, which tracks the proportion of Americans working or looking for work, rose to 62.5%. For workers of the most able-bodied age between the ages of 25 and 54, it rose to 83.1 percent.