• Nonfarm payrolls employment grew 678,000 in February

• Upward revision to the prior two months totaling 92,000

• All major industries saw job growth in February

• Unemployed rate narrows in on pre-pandemic low

• Soaring US worker pay stalled in February

• Labor force participation little change at 62.3%

• A robust labor market will likely keep the Federal Reserve on track to raise interest rates

US job growth accelerated in February, posting the biggest monthly gain since July as the employment picture got closer to its pre-pandemic self. Nonfarm payrolls for the month grew by 678,000 in February. Meanwhile, the change in total nonfarm payroll employment for December was revised up by 78,000, from 510,000 to 588,000, and the change for January was revised up by 14,000, from 467,000 to 481,000. With these revisions, employment in December and January combined is 92,000 higher than previously reported. Employment was still down -2.1m, or -1.4% from its pre-pandemic level in February 2020.

Job gains were extraordinarily broad-based in February, with more than threequarters of the 256 industries surveyed adding jobs during the month, led by gains in leisure and hospitality, professional and business services, health care, and construction. Some of the largest gains were in relatively lower-paying industries, such as restaurants, bars and hotels (151,200), retail trade (36,900), temporary staffing (35,500) and social assistance (30,700). Hiring also rose strongly at white-collar professional jobs (95,000), health care (64,000), construction (60,000) and transportation and warehousing (48,000).

Unemployment rate dropped from 4.0% to 3.8%. That’s still above pre-pandemic level of 3.5%. Number of unemployed edged down to 6.3m, above pre-pandemic level of 5.7m. The size of the labor force increased by 301,000 in February. The percentage of people in the labor force rose a tick to 62.3%, though it’s still well below the peak before the pandemic. Wage growth was a disappointment, however, with average hourly earnings rose 0.0% mom

The unemployment rate fell 0.2 percentage points to 3.8% in February, as the household measure of employment rose by 548,000, easily outpacing a 304,000-person rise in the civilian labor force. Both the labor force participation rate and employment-population ratio have increased substantially over the past few months, with the labor force participation rate rising 0.6 percentage points to 62.3% and the employment-population ratio rising 1.1 percentage points to 59.9%. The labor force participation rate for prime working age adults, those aged 25 to 54, has risen 0.6 percentage points over this time period to 82.2%. All three indicators mark new highs for the pandemic period. An alternative measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons, and is sometimes referred to as the “real” unemployment rate, also edged higher, to 7.2%. The trend for jobs is clearly upward after a wintertime surge of Covid omicron cases, while exacting a large human toll, left little imprint on employment.

In a sign that inflation could be cooling, wages barely rose for the month. The larger proportion of jobs added in lower-paying industries contributed to average hourly earnings being unchanged in February whilst year-over-year increased fell back down to 5.1% as more lower-wage workers were hired and 12-month comparisons helped mute more recent gains. The disappointing wage data are even worse after accounting for faster inflation. With price increases outpacing growth in compensation, that effectively means many workers are taking a pay cut. Such a low print does serve as a reminder that wages won’t necessarily continue to rise at a very rapid pace if labor supply continues to increase

A robust labor market will likely keep the Federal Reserve on track to raise interest rates

Payrolls impressed once again in February. With the unemployment rate getting very close to its pre-pandemic low of 3.5%, the labor market is getting tighter and tighter. Even though wage growth lagged expectations, strong hiring and the lower unemployment rate support the Fed’s plan to raise rates this month. It is certainly tight enough for the Fed to take interest rates higher. The February jobs report will give the Fed greater confidence to push ahead with its planned policy tightening but, with wage growth now levelling off, there is arguably less pressure for officials to front-load an aggressive series of rate hikes over the coming months.

At the current rate of job creation, it will not take long for the labor market to re-attain its pre-pandemic vigour. With many large employers planning to bring employees back to the office in March, we expect to see additional improvement in nonfarm employment and labor force growth. Nonfarm employment will benefit from further gains in leisure and hospitality jobs, as office-adjacent employment rebounds along with the return of office workers. The return of economic activity in the center cities should also further bolster labor force growth.

Meanwhile, the knock-on economic impacts of Russia’s invasion of Ukraine, are likely to exert an economic drag on the US economy. Most obviously through higher prices for energy (among other goods). With substantial excess savings, and strong income growth, consumers are in a good position to absorb higher prices, but they will still weigh on economic activity. Geopolitical problems will push inflation higher, and have created a tremendous amount of uncertainties that will put a damper on economic growth and jobs going forward. Alongside greater risk aversion and tighter financial conditions, this could result in fewer Fed hikes in the coming quarters than markets had been expecting prior to the war.

Source: BIMB Securities Research - 7 Mar 2022