U.S. Jobless Rate Hits Two-Year High
“The February jobs report doesn’t look recessionary. But it does suggest the Fed is getting closer to mission accomplished, calming the hot jobs market that contributed to high inflation.”
The U.S. jobless rate climbed to a two-year high in February even as hiring remained healthy, pointing to a cooler yet resilient labor market.
Nonfarm payrolls advanced 275,000 last month, following a combined 167,000 downward revision to the prior two months, a Bureau of Labor Statistics (BLS) report showed Friday. The unemployment rate rose to 3.9 percent, and wage gains slowed.
The report illustrates a labor market that is gradually downshifting, with more moderate job and pay gains that suggest the economy will keep expanding without much risk of a re-acceleration in inflation. Such a combination gives room for Federal Reserve policymakers to lower interest rates this year.
The payrolls and wage numbers are derived from a survey of businesses and other employers, while the unemployment figures come from a separate, smaller poll of households. The latter survey reflected a jump in the number of unemployed workers.
Digging beneath the surface, data showed some of the increase in the unemployment rate was due to people entering the labor force and not immediately finding work.
| Metric | Actual | Estimate |
|---|---|---|
| Change in payrolls (month-over-month) | +275,000 | +200,000 |
| Unemployment rate | 3.9% | 3.7% |
| Average hourly earnings (month-over-month) | +0.1% | +0.2% |
Job growth in February was led by service-providing sectors, including healthcare, leisure and hospitality, and the government, the BLS survey of establishments showed.
The S&P 500 opened higher, while shorter-term Treasury yields fell and the dollar weakened after the figures. Traders boosted bets on a June interest rate cut, seeing that now as a certainty.
Resilient job creation and moderate pay gains continue to provide consumers the wherewithal to sustain their spending, even as they’re pinched by higher borrowing costs and prices. A gradual yet uneven pickup in labor force participation has alleviated a great deal of the tightness in the job market.
Fed Impact
Fed officials are paying close attention to the job market and its impact on consumer spending as they assess the trajectory of inflation, with February’s consumer price index (CPI) due next week. The very gradual cooling in the labor market is part of the reason why policymakers have indicated they’re in no rush to cut interest rates.
“We’re seeing a labor market that is still tight, still strong; wages are moving up,” Fed Chair Jerome Powell said in testimony before Congress on Wednesday. “And we’re trying to use our policies to keep that growth going and to keep that labor market strong, while also achieving further progress on inflation.”
Another key point is the relationship between the supply and demand of workers and the implications for wages. Average hourly earnings rose 0.1 percent from January and 4.3 percent from a year ago. The moderation in pay growth follows an outsized jump in the prior month, which some economists attributed to extreme weather.
What Bloomberg Economists Say…
“Because we forecast nonfarm-payroll prints to continue cooling over the spring, we expect the Fed’s balance of risks to become more evenly weighted, opening the door for a rate cut in May.”
— Anna Wong, Stuart Paul, Eliza Winger & Estelle Ou
This is the last monthly jobs report Fed officials will have on hand before they meet March 19 and 20. Economists expect officials will hold interest rates steady as they await further progress on inflation.
“The February jobs report doesn’t look recessionary. But it does suggest the Fed is getting closer to mission accomplished, calming the hot job market that contributed to high inflation,” Bill Adams, chief economist at Comerica Bank, said in a note.
Meanwhile, in his State of the Union address Thursday, President Joe Biden boasted about the strength of the jobs market and manufacturing employment during his term. The jobs report “feels like the very definition of a soft landing,” Julie Su, acting Labor Secretary, said on Bloomberg Television.
The jobs report also showed that the labor force participation rate—the share of the population that is working or looking for work—held at 62.5 percent. The rate for workers age 25 to 54, however, climbed to a five-month high of 83.5 percent.
Digging Deeper |
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