311,000 jobs despite Fed rate hikes
Published 5:48 pm Friday, March 10, 2023
WASHINGTON — America’s employers added a substantial 311,000 jobs in February, fewer than January’s huge gain but enough to keep pressure on the Federal Reserve to raise interest rates aggressively to fight inflation.
The unemployment rate rose to 3.6%, from a 53-year low of 3.4%, as more Americans began searching for work but not all of them found jobs.
Friday’s report from the government made clear that the nation’s job market remains fundamentally healthy, with many employers still eager to hire. Fed Chair Jerome Powell told Congress this week that the Fed would likely ratchet up its rate hikes if signs continued to point to a robust economy and persistently high inflation. A strong job market typically leads businesses to raise pay and then pass their higher labor costs on to customers through higher prices.
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February’s sizable job growth shows that so far, hiring is continuing to strengthen this year after having eased in late 2022. From October through December, the average monthly job gain was 284,000. That average has surged to 351,000 for the past three months.
Economists pointed to other data in Friday’s report that suggested that the job market, while still hot, may be better balancing employers’ need for workers and the supply of unemployed people. More people have been coming off the sidelines to seek work, a trend that makes it easier for businesses to fill the millions of jobs that remain open.
The proportion of Americans who either have a job or are looking for one has risen for three straight months to 62.5%, the highest level since COVID struck three years ago. Still, it remains below its pre-pandemic level of 63.3%.
With more potential hires to choose from, employers seem under less pressure now to dangle higher pay to attract or retain workers. Average wage growth slowed in February, rising just 0.2%, to $33.09, the smallest monthly increase in a year. Measured year over year, though, hourly pay is up 4.6%, well above the pre-pandemic trend. Even so, that’s down from average annual gains above 5% last year.
What the Fed may decide to do about interest rates when it meets later this month remains uncertain. The Fed’s decision will rest, in part, on its assessment of Friday’s jobs data and next week’s report on consumer inflation in February.
Last month, the government’s report on January inflation had raised alarms by showing that consumer prices had reaccelerated on a month-to-month basis.
Ahead of the February jobs data, many economists had said they thought the Fed would announce a substantial half-point increase in its key short-term interest rate, rather than a quarter point hike as it did at its meeting in February. Friday’s more moderate hiring and wage figures, though, led some analysts to suggest that the central bank may not need to move so aggressively at this month’s meeting.
“There’s clear signs of cooling when you dig deeper into the numbers,” said Mike Skordeles, head of economics at Truist, a bank. “I think it makes the case for the Fed to say … we’ll still hike rates, but we’re not going to do” a half-point hike.
The Fed’s final determination, though, will rest heavily on Tuesday’s report on consumer prices.
“Everything now hinges on February’s CPI report,” said Paul Ashworth, an economist at Capital Economics.
When the Fed tightens credit, it typically leads to higher rates on mortgages, auto loans, credit card borrowing and many business loans. Its rate hikes can cool spending and inflation, but they also raise the risk of a recession.
Even for workers who have received substantial pay raises, ongoing high inflation remains a burden. Consumer prices rose 6.4% in January compared with a year ago, driven up by the costs of food, clothing and rents, among other items.
Frustrated by wages that aren’t keeping up with inflation, Rodney Colbert, a cook at the Las Vegas convention center, joined a strike Thursday by the Culinary Workers union to demand better pay and benefits. Colbert said that his hourly pay was $4-$5 less than what cooks were paid at casinos on the Las Vegas Strip.
“I’ll average approximately 28 hours a week, and that’s not enough,” Colbert said. “Just in the past two years, my rent has gone up $400, so that’s a lot.”
Nationally, nearly all of last month’s hiring occurred in mostly lower-paid services industries, with a category that includes restaurants, bars, hotels and entertainment adding 105,000 jobs, its second straight month of strong gains. Warmer-than-usual weather likely contributed to the increase. With the weather likely allowing more building projects to continue, construction companies added 24,000 jobs.
Retailers added about 50,000 jobs last month, health care providers 63,000. Local and state governments — some of them flush with cash from stimulus programs — added 46,000 jobs.
Much of that job growth reflects continuing demand from Americans who have been increasingly venturing out to shop, eat out, travel and attend entertainment events — activities that were largely restricted during the height of COVID.
“We’ve created more jobs in two years than any administration has created in the first four years,” President Joe Biden said Friday about the employment report. “It means our economic plan is working.”
Economists note, however, that the very strength of the job market is itself contributing to the high inflation that continues to pressure millions of households.
In February, in contrast to the solid hiring in the services sector, manufacturers cut 4,000 jobs. And a sector that includes technology and communications workers shed 25,000 jobs, its third straight month of losses. It is a sign that some of the announced layoffs in the economy’s tech sector are being captured in the government’s data.
Last month, the government reported a surprising burst of hiring for January — 517,000 added jobs — though that gain was revised down slightly to 504,000 in Friday’s report. The vigorous job growth for January was the first in a series of reports to point to an accelerating economy at the start of the year. Sales at retail stores and restaurants also jumped, and inflation, according to the Fed’s preferred measure, rose from December to January at the fastest pace in seven months.
The stronger data reversed a cautiously optimistic narrative that the economy was cooling modestly — just enough, perhaps, to tame inflation without triggering a deep recession. Now, the economic outlook is hazier.