US job growth accelerates; unemployment rate at two-year high of 3.9%

US JOB growth accelerated in February, but downward revisions to employment gains in the prior two months and an increase in the unemployment rate to a two-year high of 3.9 per cent suggested that the labour market was slowing.

The Labor Department’s closely watched employment report on Friday (Mar 8) also showed wage growth cooling last month, and boosted financial market expectations that the Federal Reserve would start cutting interest rates by June. The labour market is supporting the economy, which is outperforming its global peers.

“After a few months of headfakes, it looks like the labour market is returning to last year’s familiar moderating trend,” said Nick Bunker, economic research director for North America at Indeed Hiring Lab. “The Fed should be content with this report as well, as not only is employment holding up but wage growth is slowing down.”

Nonfarm payrolls increased by 275,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said. The economy created 167,000 fewer jobs in December and January than previously estimated.

Economists polled by Reuters had forecast 200,000 jobs added, with estimates ranging from 125,000 to 286,000. Payrolls are more than double the roughly 100,000 jobs needed per month to keep up with growth in the working age population.

Financial markets saw an 80 per cent chance of a first rate-cut by June, up from 75 per cent before the report was released.

Since March 2022, the US central bank has raised its policy rate by 525 basis points to the current 5.25 to 5.50 per cent range. Fed chair Jerome Powell told lawmakers this week that rate cuts would “likely be appropriate” later this year, but emphasised they “really will depend on the path of the economy”.

US stocks opened higher. The dollar fell against a basket of currencies. US Treasury prices were mostly higher.

Broad job gains

Acyclical sectors such as government and healthcare, which are still rebuilding headcount that was reduced during the Covid-19 pandemic, led employment gains last month. Nonetheless, the breadth of job gains continued to broaden.

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Healthcare payrolls increased by 67,000, driven by hiring in ambulatory healthcare services as well as at hospitals, nursing and residential care facilities. Government employment rose by 52,000, with gains in both local and federal governments. Restaurants and bars added 42,000 jobs.

Social assistance payrolls increased by 24,000 jobs, while employment in the transportation and warehousing sector rose by 20,000, amid a rebound in hiring for couriers and messengers, after shedding 70,000 jobs over the last three months.

Construction payrolls increased by 23,000 jobs. There were also gains in retail employment. But temporary help services, seen as a harbinger for future hiring, declined by 15,400 jobs. Manufacturing shed 4,000 jobs.

The unemployment rate increased to 3.9 per cent, the highest level since January 2022, after holding at 3.7 per cent for three straight months. The smaller household survey from which the jobless rate is derived showed a decline in employment.

That together with 150,000 joining the labour force accounted for the rise in unemployment rate. Still, fewer people were experiencing long bouts of unemployment in February.

Despite a rash of high-profile layoffs at the start of the year, employers are generally holding on to their workers after struggling to find labour during the pandemic. Though labour supply and demand are falling back into balance, amid a rise in immigration and older workers delaying retirement, some sectors of the economy remain desperate for skilled workers.

There were 1.45 open jobs for every unemployed person in January, still above the average of 1.2 during the year before the pandemic, government data showed this week. The Fed’s Beige Book report also showed “difficulties persisted attracting workers for highly skilled positions” in February.

Average hourly earnings edged up 0.1 per cent last month after gaining 0.5 per cent in January. That lowered the year-on-year increase in wages to a still-high 4.3 per cent in February from 4.4 per cent in January. REUTERS