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February jobs report: Payrolls rise by 678,000 as unemployment rate falls to 3.8%

·Reporter
·4 min read
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The U.S. economy added back the most jobs since July 2021 in February, with job growth accelerating even in the already-tight labor market as new Omicron cases from earlier this year came down.

The Labor Department released its February jobs report Friday at 8:30 a.m. ET. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg:

  • Non-farm payrolls: +678,000 vs. +423,000 expected and an upwardly revised +481,000 in January

  • Unemployment rate: 3.8% vs. 3.9% expected, 4.0% in January

  • Average hourly earnings, month-over-month: 0.0% vs. 0.5% expected and a downwardly revised 0.6% in January

  • Average hourly earnings, year-over-year: 5.1% vs. 5.8% expected and a downwardly revised 5.5% in January

February's jobs report presented yet another upside surprise to investors, and marked a fourteenth consecutive month of payroll growth. Last month, January's jobs report also showed many more jobs returned than expected, with payrolls rising by 400,000 versus the 125,000 expected at the time. In Friday's report, January's job gains were also upwardly revised even further to show 481,000, compared to the 467,000 previously reported. And December's payrolls were upwardly revised again to 588,000, compared to the 510,000 posted in last month's revision.

The data for the past several months signaled that underlying labor market momentum remained strong even as a record surge in COVID-19 cases at the beginning of the year temporarily cooled demand for workers, especially in the high-contact services sector. The unemployment rate improved to 3.8% to reach the lowest level since February 2020 before the pandemic meaningfully dented the U.S. economy. And this came even as the labor force participation rate unexpectedly ticked up to 62.3%, signaling more individuals were returning to look for work or be placed in jobs.

"Momentum in the labor market remains remarkable with payroll growth averaging 583k/month over the last six months, with little signs of slowing," Bank of America economist Stephen Juneau wrote in a note Friday. "We expect labor demand to continue to outpace growth in labor supply which should drive the u-rate [unemployment rate] to 3.2% by yearend."

February's also saw broad gains in employment across industries, especially since Omicron cases retreated further in the weeks since the last jobs report. The hard-hit services sector posted a notable increase in jobs last month. Leisure and hospitality employers added back 179,000 jobs to build on a jump of 167,000 from January, and education and health services jobs rose by 112,000. Transportation and warehousing job growth came in at almost 50,000 to nearly match January's gains.

And within the goods-producing sector, strength was likewise seen across manufacturing, construction and non-durable goods employment, with job growth accelerating in February compared to January. Only motor vehicles and parts manufacturing employers shed jobs on net during February, with these falling by 18,000.

Meanwhile, average hourly wage growth unexpectedly decelerated in February. On an annual basis, wages rose 5.1%, marking the slowest rate since December. And over last month, average hourly earnings were flat after rising by 0.6% in January.

But even with the slowdown, wages have risen at rates well above pre-pandemic trends for months now. This has, in turn, contributed to the overall rise in inflation seen across the U.S. economy, though wages have not kept pace with the rise in consumer price inflation. The Consumer Price Index last rose 7.5% in January over last year — the biggest jump in 40 years.

Taken together, evidence of much stickier-than-expected inflation and a consistently improving labor market have helped make the case for the Federal Reserve to begin raising interest rates and otherwise remove its pandemic-era support mechanisms for the U.S. economy. Federal Reserve Chair Jerome Powell offered an upbeat assessment of the U.S. economic backdrop during his semi-annual address before Congress earlier this week.

"The labor market is extremely tight ... improvements in labor market conditions have been widespread, including for workers at the lower end of the wage distribution as well as for African Americans and Hispanics," Powell said during his testimony before the House Financial Services Committee on Wednesday.

"Labor demand is very strong, and while labor force participation has ticked up, labor supply remains subdued," Powell said. "As a result, employers are having difficulties filling job openings, an unprecedented number of workers are quitting to take new jobs, and wages are rising at their fastest pace in many years."

Most Federal Open Market Committee members would agree the current labor situation is consistent with maximum employment, Powell added. And as a result, he said with unusual clarity that he would support a 25-basis point interest-rate hike after the Fed's next meeting concludes later this month, bringing the benchmark rate slightly above its current near-zero level.

The Federal Open Market Committee is next set to convene March 15 and 16.

This post is breaking. Check back for updates.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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