311K Jobs Added in February as Labor Market Again Surprises to the Upside

The economy added 311,000 jobs in February, well above expectations and complicating the Federal Reserve’s task of slowing the economy to fight inflation.

Friday’s report from the Labor Department, while still not as eye-popping as the revised 504,000 gain in January, still shows a job market that is hotter than the Fed would like. Economists had predicted a gain of around 225,000.

“Notable job gains occurred in leisure and hospitality, retail trade, government, and health care,” the report noted. “Employment declined in information and in transportation and warehousing.”

The unemployment rate, meanwhile, edged up to 3.6% from 3.4%.

Wages, meanwhile, rose by 4.6% on an annualized basis, a slight improvement from the prior month. In an important development, the share of workers aged 25 to 54 currently working is now back at levels before the coronavirus pandemic.

“The payroll number will grab everyone’s attention, but let’s start with: PRIME AGE EMPLOYMENT POPULATION RATIO FULLY BACK TO PRE-PANDEMIC LEVELS!!!,” Guy Berger, principal economist at LinkedIn, tweeted.

“February’s report is further evidence that the labor market is fundamentally different compared to pre-pandemic,” said Bill Armstrong, president of recruiting at Safeguard Global. “We are seeing the number of job opportunities and competition for candidates remain strong. It is more common than not to see strong candidates receiving multiple job offers.”

“This tells us there are still more jobs than candidates and there is no indication the labor market will cool off any time soon,” he added. “We can expect March to be another solid month with more interest rate hikes from the Fed as a result.”

The report was highly anticipated as markets seek some clarity on the state of the labor market and the likelihood it will stoke wage inflation. Federal Reserve Chairman Jerome Powell made it clear this week in testimony before Congress that the central bank is not finished raising interest rates to fight inflation. But he also indicated that officials would monitor incoming data after a slew of reports indicated the economy and the labor market were running hotter than expected as 2023 began.

“The Fed is engaged in the most aggressive tightening in 40 years,” says Flora Hedrick, managing vice president at MissionSquare Retirement. “This overall backdrop is not going to work out well for the markets and corporate earnings.”

While the labor market has outperformed, there is some evidence things are softening a bit. Online hiring firms say that some of the frenzy of the past two years, when employers were offering signing bonuses and workers were switching jobs to get pay raises, has subsided.

“In the topsy-turvy upside-down world we are in, rising unemployment and falling wage growth are good things for the inflation fight,” Odeta Kushi, deputy chief economist at title insurer First American, wrote Friday morning ahead of the jobs report.

Jim McCoy, senior vice president of enterprise solutions at Manpower Group, says one positive for the labor market is that more women are coming back after staying out of the workforce during the COVID pandemic. That should help restore some balance to the market.

“That’s one thing that had declined and now it’s on the uptick,” McCoy says. But, he adds, overall the labor market remains tight with “almost two to one between job openings and job seekers.”

The labor market has become a key element in the Fed’s thinking about inflation and interest rates. While there has been some progress on inflation, especially within the goods sector of the economy, wages are still advancing at a pace above 4% annually. That is more than double the Fed’s 2% annual inflation target.

“This is the trillion-dollar question,” says Mark Hamilton, chief investment officer at Hirtle, Callaghan. “There were signs that inflation was abating, the question is are we going to see a continuing decline or a leveling off where the Fed’s job gets even tougher.”