Five takeaways from February’s surprising jobs report
Sabrina Britt, left, and Nino Alexander interview for a job during a recruiting event in Atlanta on Thursday.
The labor market showed surprising strength last month in the face of slowing global growth, adding a robust 242,000 net new jobs after disappointing gains in January added to fears the U.S. economic recovery was losing momentum.
The mostly upbeat Labor Department report released Friday helped ease fears of another recession this year.
But all the news on the jobs front wasn’t positive as wages fell after a strong gain in January.
Here are five key takeaways.
Solid job growth returns
The initial estimate of job growth in January was a disappointing 151,000. That was below the roughly 220,000 average monthly gain in 2015.
Economists expected hiring to increase to about 190,000 last month. The actual job growth far exceeded that.
“February was a strong month with solid growth,” said Patrick O’Keefe, economic research director at accounting and consulting firm CohnReznick.
On top of that, job growth in December and January was revised up by a combined 30,000 net new positions.
Economic data can fluctuate month to month. But over the past three months, the economy has added jobs at about the same pace as it did in 2015.
Job gains were concentrated in four sectors: retail sales; leisure and hospitality; education and health services; and construction.
But the slowing world economy took its toll in other areas of the U.S. economy.
The mining industry shed 19,000 jobs because of lower prices. Manufacturers cut their payrolls by 16,000 as slow growth in key nations around the world and the rising value of the dollar have reduced demand for U.S. products.
More people are jumping into the labor force
Despite the job growth, the unemployment rate held steady last month at an eight-year low of 4.9%.
The reason was simple: More people were out looking for work.
The labor force jumped by 555,000 people in February, the largest in more than a year and the fourth-straight monthly increase.
That in turn pushed the closely watched labor force participation rate -- the percentage of adults in the workforce -- up to 62.9%. It’s the highest level since January 2015, although it remains near historic lows.
“The labor force picture is encouraging,” O’Keefe said. “The unemployment rate is declining for virtuous reasons.”
Wage growth reverses
The big downbeat note in the jobs report was that wages declined after a strong increase in January raised hopes that workers’ paychecks were finally starting to show significant gains.
Average hourly earnings declined by 3 cents an hour to $25.35, the largest drop since 2014.
While job growth is improving, it hasn’t been fast enough to offset the growing labor force and compel employers to boost wages to lure and retain workers, said William Spriggs, chief economist at the AFL-CIO labor union.
“We’re seeing some solid growth, but it’s growth just fast enough to absorb the people who are entering the labor force,” he said.
For the 12 months ended Feb. 29, wages have increased 2.2%, which is well above the low inflation rate but slower than the annual pace recorded in the previous six months.
No recession looming
January’s disappointing jobs report, on top of a slowdown in the U.S. economy in the fourth quarter and tumultuous financial markets, led to fears that another recession was on its way.
Economists have been raising their estimates of the risk of a recession this year, although those figures still remain low.
February’s jobs report should ease recession concerns, said Stuart Hoffman, chief economist at PNC financial services.
“These are not the jobs reports of which recessions are made,” Hoffman said of the average 228,000 in job gains over the last three months.
“Quite the contrary, these are job reports consistent with continued moderate economic growth,” he said.
O’Keefe agreed.
“It wasn’t like the lights were going from orange to red. They were just dimming how green they were,” he said of the recession risk.
“I think this [report] does offer further strength in the confidence that the recovery still has a solid forward momentum,” O’Keefe said.
A Fed rate hike this month is unlikely
An all-around strong jobs report would have increased pressure on Federal Reserve policymakers to nudge up a key interest rate this month.
Such a move has been considered a long shot because of recent swings in financial markets and slowing global growth.
And although Fed officials will be heartened by the return of solid job growth, the news on wages probably will give them pause, Hoffman said.
“It’s a good report, but the wages are the fly in the ointment,” he said.
Fed policymakers have been concerned that inflation remains low. And the latest news on wages doesn’t help, said Ryan Wang, U.S. economist at HSBC.
“Until we see faster wage growth, I would not expect to see a broad-based pickup in inflation pressure,” he said.
The Fed probably will want to watch global and financial economic developments, as well as U.S. data, and could enact another small hike in June, Wang said.
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