U.S. job creation quickened in February, while the unemployment rate rose to 3.9%, indicating a deteriorating labor market. The Labor Department's carefully awaited employment report on Friday showed moderate wage growth last month. After three months at 3.7%, the unemployment rate rose due to a drop in household employment.
The mixed report increased the likelihood of a June Fed rate drop. Despite slowing progress, the labor market supports the economy, which outperforms its global peers. "Despite the solid nonfarm payroll gain, the details from this jobs report are far weaker," said San Francisco BMO Capital Markets chief U.S. economist Scott Anderson. "Labor market rebalancing is underway as advertised by the Fed, opening the door for a soft-landing for the economy and an initial rate cut around the middle of the year."
The establishment survey showed 275,000 nonfarm payrolls rose last month. December and January job growth was 167,000 lower than expected. Reuters economists predicted 200,000 February employment gains, ranging from 125,000 to 286,000. Payrolls are more than double the 100,000 monthly jobs needed to keep up with working-age population growth.
Last month, household employment fell 184,000 jobs in the smaller household survey that calculates unemployment. Using nonfarm payroll methodology, household employment fell 271,000 jobs for the third straight month. Some economists expected March's employment data from the Labor Department's Bureau of Labor Statistics to reduce February payrolls. solid payrolls indicate a solid labor market, yet a negative household survey suggests layoffs are rising.
After struggling to recruit labor during the COVID-19 outbreak, firms are holding onto their workers despite a wave of high-profile layoffs. "Our main concern is the widening gap between establishment nonfarm payroll data and household employment survey," said William Blair macro analyst Richard de Chazal in London. "The labor market on the whole is still tight, but the household survey is very clearly telling us that momentum is waning."
Financial markets predicted 80% of a first rate drop by June, up from 75% before the announcement. Since March 2022, the U.S. central bank has lifted its policy rate by 525 basis points to 5.25%-5.50%. Fed Chair Jerome Powell told legislators this week that rate decreases "likely be appropriate" later this year, but "really will depend on the path of the economy." Wall Street stocks rose. The dollar sank versus a basket. U.S. Treasury prices varied.
Last month, government and healthcare, which are rebuilding headcount after the pandemic, led employment growth. 62.6% of industries reported job gains, expanding the breadth. Healthcare payrolls grew 67,000 due to employment in hospitals, nursing homes, and ambulatory care centers. Local and federal governments added 52,000 jobs.
Restaurants and bars created 42,000 jobs. After losing 70,000 jobs in the last three months, courier and messenger hiring rebounded, and social support payrolls rose by 24,000 and transportation and warehousing by 20,000.
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