Non-farm employment rose by 275k in February, well ahead of the consensus forecast calling for a smaller gain of 200k. However, revisions to the two-prior months were meaningfully lower, subtracting 167k jobs from the previously reported figures.
- Hiring over the last three-months (December-February) averaged 265k jobs per-month, only slightly lower than the pace of job creation measured over the same time last year (302k).
Private payrolls rose by 223k – an uptick from January’s 177k. The service sector added 204k jobs, with gains concentrated in health care & social assistance (+90.7k) and leisure & hospitality (+58k). Job gains across goods producing industries (+19k) were almost entirely concentrated in construction (+23k), while manufacturing (-4k) shed jobs. Government hiring remained robust, adding 52k jobs last month.
In the household survey, civilian employment declined by 184k while the labor force rose by 150k. As a result, the unemployment rate increased by 0.2 percentage points to 3.9% – the highest level in just over two years. The participation rate held steady at 62.5% for the third consecutive month.
Average hourly earnings (AHE) rose by just 0.1% month-on-month – a sharp deceleration from January’s downwardly revised reading of 0.5% m/m (previously 0.6%). The deceleration in wage growth was largely attributed to a rebound in average weekly hours, after falling sharply last month – likely due to weather impacts. On a twelve-month basis, AHE slipped to 4.3%, while the three-month annualized rate of change fell to 4.0% (from 5.0% in January).
Key Implications
On the surface, this was a very strong employment report with payrolls coming in well above the consensus forecast. But February’s upward surprise needs to be weighed against the 167k in downward revisions to the prior two months, and the fact that the unemployment rate ticked up to a two-year high. Overall, the labor market remains incredibly tight and will likely need to show further signs of cooling before inflation can return to 2%.
With the Fed recently downplaying growth and focusing more on inflation dynamics, this morning’s report will ultimately play second fiddle to next week’s inflation data. That said, the fact that the labor market is showing little sign of deteriorating supports the case that Fed officials can be patient and continue to monitor the inflation data over the coming months. We suspect that by July, policymakers will have gained enough conviction that inflation is on a sustainable path back to 2 percent to warrant some easing in the policy rate.
