The U.S. economy added 311k jobs in February, well ahead of the consensus forecast of 225k. Revisions to the two months prior were slightly negative, subtracting 34k from the previously reported figures.
Employment gains on the service-side (+245k) remained strong and were concentrated in leisure & hospitality (+105k), health care (+63k), professional & business services (+45k) and transportation & warehousing (+50k). Goods producing industries (+20K) chipped in with modest gains, with job growth entirely concentrated in construction (+24k). Public sector hiring also had another solid month, adding 46k.
In the household survey, civilian employment rose by 177k workers, while the labor force expanded by a robust 419k. As a result, the participation rate edged higher by 0.1%-pts, reaching a new cyclical high of 62.5%. The unemployment rate ticked higher by 0.2%-pts, returning to 3.6%.
Average hourly earnings rose 0.2% month-on-month (m/m) – a deceleration from January’s 0.3% m/m gain. Favorable base effects pushed the 12-month change on average hourly earnings to 4.6%, though the 3-month (annualized) change slipped to 3.6% – marking the second consecutive month of deceleration.
Key Implications
Wow, another exceptionally strong month of hiring! Job growth again far exceeded expectations, while revisions to prior months did little to take the shine of previously reported figures. As a result, the three-month average on hiring ticked up to 351k, highlighting the considerable strength that remains in today’s labor market. It has become clear that the anticipated adjustment that needs to occur to tame inflation is unlikely to take hold until at least the second half of this year.
While the optimist may point to the fact that the three-month change on hourly earnings slipped to slowest pace of growth in nearly two-years, we would caution reading too much into this. For starters, the labor market remains incredibly tight and given the recent strength in hiring activity, we are unlikely to see much more slowing in the months ahead. Second, hourly earnings don’t adjust for compositional effects across sectors, and as a result, have been running well below most other wage growth metrics in recent months.
With economic data largely surprising to the upside to start the year, Fed officials have struck a decisively more hawkish tone in recent weeks. This sentiment was echoed by Chair Powell in his joint testimony to Congress earlier this week where he hinted at rates needing to go higher and possibly faster over the coming months. Given the strength in this morning’s employment report, it now seems that a 50-bps hike is the most likely outcome when the FOMC next meets on March 22nd.
