America’s employers added a substantial 311,000 jobs in February, fewer than January’s huge gain but enough to keep pressure on the Federal Reserve to raise interest rates aggressively to fight inflation.
The unemployment rate rose to 3.6%, from a 53-year low of 3.4%, as more Americans began searching for work but not all of them found jobs.
Friday’s report from the government made clear that the nation’s job market remains fundamentally healthy, with many employers still eager to hire. Fed Chair Jerome Powell told Congress this week that the Fed would likely ratchet up its rate hikes if signs continued to point to a robust economy and persistently high inflation. A strong job market typically leads businesses to raise pay and then pass their higher labor costs on to customers through higher prices.
February’s sizable job growth shows that so far, hiring is accelerating this year after having eased in late 2022. From October through December, the average monthly job gain was 284,000. That average has surged to 351,000 for the past three months.
Such outsize hiring may propel the Fed to accelerate its rate hikes to try to tame still-high inflation. When the Fed tightens credit, it typically leads to higher rates on mortgages, auto loans, credit card borrowing and many business loans.
At the same time, average wage growth slowed in February, a trend that suggests that inflationary pressures might be easing. Average hourly earnings rose just 0.2%, to $33.09, the smallest monthly increase in a year. Measured year over year, though, hourly pay is up 4.6%, well above the pre-pandemic trend.
Nearly all of last month’s hiring occurred in services industries — from restaurants and hotels to retailers and health care companies. Much of that job growth reflects continuing demand from Americans who have been increasingly venturing out to shop, eat out, travel and attend entertainment events — activities that were largely restricted during the height of COVID.
In contrast to the solid hiring last month in the service sector, manufacturers cut 4,000 jobs. And a sector that includes technology and communications workers shed 25,000 jobs, its third straight month of losses. It is a sign that some of the announced layoffs in the economy’s tech sector are being captured in the government’s data.
Next Fed Move Uncertain
What the Fed may decide to do about interest rates when it meets later this month remains uncertain. The decision will rest, in part, on its assessment of Friday’s jobs data and next week’s report on consumer inflation in February.
Last month, the government reported a surprising burst of hiring for January — 517,000 added jobs — though that gain was revised down slightly to 504,000 in Friday’s report. The vigorous job growth for January was the first in a series of reports to point to an accelerating economy at the start of the year. Sales at retail stores and restaurants also jumped, and inflation, according to the Fed’s preferred measure, rose from December to January at the fastest pace in seven months.
The stronger data reversed a cautiously optimistic narrative that the economy was cooling modestly — just enough, perhaps, to tame inflation without triggering a deep recession. Now, the economic outlook is hazier.
High borrowing rates have cratered the housing market, with home sales having dropped for 12 straight months, a consequence of the average mortgage rate nearly doubling over that time. Manufacturing is also showing signs of weakness. Higher rates have made it harder for businesses and consumers to borrow to buy major factory goods, from machinery to cars to appliances. By contrast, spending for services remains strong.
Hiring at February’s pace is still about triple the level the Fed would prefer. Job gains of about 100,000 a month would be just enough to keep up with population growth and prevent unemployment from rising. A figure that low would also mean that employers weren’t so desperate for workers and wouldn’t have to keep raising wages.
Higher pay is great for employees, of course. But Fed officials say it is contributing to higher inflation, particularly in labor-intensive service industries like restaurants, health care and hotels.