The U.S. labor market continued its path of strength in February, adding 275,000 jobs in the month. The unemployment rate increased slightly to 3.9%, up from 3.7% the previous month. Wage growth continued to slow, coming in at 4.3% growth over the last year, but remains elevated relative to historical averages. It is anticipated this report will encourage the Fed to hold back any interest rate changes at its upcoming meeting.
Another Better Than Expected Jobs Report - But Some Risks Remain
Employers Added 275,000 Jobs in February While Unemployment Increased to 3.9%
Top Takeaways from the Report
Job Growth Above Expectation in February
The U.S. economy continued its strong path of growth in February, adding 275,000 jobs in the month. This is much higher than the consensus forecast that 190,000 jobs were added.
However, the Labor Department also significantly revised down the estimate of jobs created in recent months by a net total of 167,000 fewer jobs. These significant downward revisions of past reports illustrates the difficulty of using the employment report to understand the current economy. Much of this revision can be explained by seasonality in many jobs, but it also shows the struggles inherent in collecting the jobs report. Response rates to the survey have dropped in recent years, which makes collecting and interpreting the results more difficult and results in higher revisions of past reports
The U.S. unemployment rate rose slightly in February to 3.9%, compared to 3.7% the previous month. This indicates that people continue to come into the labor force looking for jobs but it is getting a little harder to actually find a job. However, the unemployment rate is still very low compared to historical averages and has been below 4% for two years.
For the third month in a row, the labor force participation rate remained at 62.5%. The labor force participation rate is a measure of how many people in the country are working or looking for a job. While the participation has been trending higher for the past four years, it’s still lower than before the pandemic began in 2020. This reflects some fundamental changes happening in the labor force right now.
Many older workers exited the labor force in the early stages of the pandemic and never returned to the jobs they left. However, the strong economy has attracted many international migrants to come into the U.S. to fill the worker gap. This dynamic will continue as long as job growth remains strong and the unemployment rate remains low.
Wage growth continued to slow in February but it remains elevated compared to long term trends. Average annual earnings increased 4.3% over the last year in February, compared to 4.4% growth the previous month. This compares to the long-term average growth of 3.1% over the last decade and a half. On a monthly basis, the slowing of wage growth was more pronounced, dropping to 0.1% growth in February compared to a revised growth of 0.5% the previous month.
The rate of inflation continues to slow but remains above where it should be. Over the past year, prices have increased by an average of 3.1%. This is much slower than the high point of just above 9% price growth in the summer of 2022, but it remains above the Fed’s target of 2%. This “last mile” of getting inflation re-anchored to the long-term average of around 2% may be difficult to achieve and will remain a primary focus of the Fed over the next year.
Growth by Industry
Private payrolls increased by 223,000 in February, with goods producing industries increasing by 19,000 and service-providing industries increasing by 204,000. In addition, government jobs increased by 52,000.
During February, all but one industry experienced positive job growth. Those leading the gains were education and health services (+85,000); leisure and hospitality (+58,000); and government (+52,000). By contrast, the only industry with a decline in jobs was manufacturing (-4,000).
The Bottom Line
This month’s job report is primarily good, but it shows some underlying struggles that remain in the U.S. economy.
● While top-line job growth came in strong, downward revisions of past months’ data reflects difficulties in measurement accuracy.
● The slight uptick in the unemployment rate, coupled with a third month of a static labor force participation rate shows that it is becoming marginally more difficult to find a job.
● Slowing wage growth and inflation are a positive sign, but they remain too high and the strain of higher prices continues to impact consumer confidence.
At the next meeting of the Federal Open Market Committee, on March 19-20, policy makers will dig through this data in an attempt to better understand where the economy is going. But as this employment report shows, economic analysis is an imprecise science and guesswork is part of the job. As Laurence Peter said: “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”
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