Another US hiring surge: 311,000 jobs despite Fed rate hike

US employers added a substantial 311,000 jobs in February, less than January’s huge gains but enough to keep pressure on the Federal Reserve to raise interest rates aggressively to fight inflation.

The unemployment rate rose from a 53-year low of 3.4% to 3.6% as more Americans started looking for work, but not all of them found jobs.

Friday’s report from the government made clear that the country’s job market remains fundamentally healthy, with many employers still eager to recruit. Fed Chair Jerome Powell told Congress this week that the Fed would increase its chances of raising rates if signs continue to point to a strong economy and persistently high inflation. A strong job market typically leads businesses to raise wages and then pass on their higher labor costs to customers through higher prices.

February’s massive job growth suggests that hiring is strengthening so far this year after easing in late 2022. From October to December, average monthly job gains were 284,000. This average has increased to 351,000 in the last three months.

Economists pointed to other data in Friday’s report that suggested the job market, while still hot, may be better balancing employers’ need for workers and the supply of unemployed people. More people are moving from the edge looking for work, a trend that makes it easier for businesses to fill the millions of jobs that remain open.

The proportion of Americans who either have a job or are looking for a job has increased for three consecutive months to 62.5%, the highest level since COVID three years ago. Still, it remains below its pre-pandemic level of 63.3%.

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With more potential hires to choose from, employers are now under less pressure to dangle higher salaries to attract or retain employees. Average wage growth slowed in February, rising just 0.2% to $33.09, the smallest monthly increase in a year. Measured year over year, however, hourly wages rose 4.6%, well above the pre-pandemic trend. Still, that’s less than last year’s average annual gain of over 5%.

What the Fed might decide to do about interest rates when it meets later this month is uncertain. The Fed’s decision will partly depend on its assessment of Friday’s jobs data and next week’s report on consumer inflation in February. Last month, the government’s January inflation report issued a warning, showing that consumer prices had risen again month-on-month.

Ahead of the February jobs data, many economists said they thought the Fed would announce a substantial half-point increase in its key short-term interest rate, rather than a quarter-point increase as it did at its meeting in February. . Friday’s more lenient hiring and wages data, however, prompted some analysts to suggest the central bank may not need to move so aggressively at this month’s meeting.

“When you dig deeper into the numbers there are clear signs of a cooling off,” said Mike Scordales, head of economics at Truist, a bank. “I think it makes a case for the Fed to say … we will still raise rates, but we’re not going to do a half-point increase.”

However, the Fed’s final determination will largely depend on Tuesday’s report on consumer prices.

“Now everything hinges on the February CPI report,” said Paul Ashworth, an economist at Capital Economics.

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When the Fed tightens credit, it typically leads to higher rates on mortgages, auto loans, credit card borrowing and many business loans. Its rate hikes can calm spending and inflation, but they also raise the risk of a recession.

Even for those employees who have received substantial pay hikes, the current high inflation remains a burden. Consumer prices rose 6.4% in January from a year earlier, driven by increases in the prices of food, clothing and rent, among other items.

Frustrated with wages that haven’t been keeping up with inflation, Rodney Colbert, a cook at a Las Vegas convention center, joined a strike Thursday by the Culinary Workers Union to demand better pay and benefits. Colbert said that his hourly wage was $4–5 less than what chefs were paid at casinos on the Las Vegas Strip.

Colbert said, “I’ll average about 28 hours a week, and that’s not enough.” “Just in the last two years, my rent has gone up by $400, so that’s a lot.”

Nationally, nearly all of last month’s hiring occurred in mostly low-wage service industries, including restaurants, bars, hotels and entertainment, which added 105,000 jobs, the second straight month of strong gains. The prospect of warmer-than-normal weather contributed to the increase. Construction companies added 24,000 jobs, with the weather likely to continue adding more construction projects.

Retailers added nearly 50,000 jobs last month, health care providers 63,000. Local and state governments – some of them flush with cash from stimulus programs – added 46,000 jobs.

That job growth reflects continued demand from Americans who are increasingly getting out to shop, eat out, travel and attend entertainment events — activities that were largely restricted during the height of COVID.

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“We’ve created more jobs in two years than any administration has done in four years,” President Joe Biden said Friday of the jobs report. “It means that our economic plan is working.”

However, economists note that the strength of the job market itself is contributing to the high inflation that is taking a toll on millions of families.

In February, manufacturers cut 4,000 jobs, in contrast to solid hiring in the services sector. And one such sector, which includes technology and communications workers, lost 25,000 jobs, its third straight month of losses. This is a sign that some of the announced layoffs in the tech sector of the economy are being captured in government statistics.

Last month, the government reported a surprise increase in hiring for January – 517,000 additional jobs – although Friday’s report revised that gain slightly to 504,000. The vigorous job growth for January was the first in a series of reports pointing to an accelerating economy at the start of the year. Sales at retail stores and restaurants also jumped, and inflation, the Fed’s favorite measure, rose at the fastest pace in seven months from December to January.

The strong data overturned cautiously optimistic narratives that the economy was cooling modestly — just enough, perhaps, to tame inflation without triggering a deep recession. Now, the economic outlook is bleak.

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