Friday’s U.S. employment report showed a larger-than-expected increase in business payrolls, but there were enough mitigating factors for some economists and the markets to view it as confirmation of easing inflation and a “soft landing” from the Fed’s tighter monetary policy.
Nonfarm payrolls rose 275,000 last month, compared with expectations of about 200,000 jobs added. Job gains were largest in health care, government, bars and restaurants, and social assistance.
But revisions to December and January figures lowered the initial estimates of worker payroll adds in those months by 167,000.
The U.S. unemployment rate, expected to be flat, hit a two-year high in February, at 3.9%, the Bureau of Labor Statistics (BLS) reported. The number of unemployed workers increased by 334,000, to 6.5 billion, without a corresponding increase in the labor-force participation rate.
For employers, average hourly earnings rose just 0.1%, and January’s 0.6% growth in earnings was revised down to 0.5%.
Mixed Messages
“The U.S. economy continues to add new jobs, but at a slower pace, the unemployment rate increased but remained below 4%, wages grew at a decelerating rate, and the prior two months job gains were revised lower,” said Michael Arone, chief investment strategist at State Street Global Advisors in an email. “This is music to investors’ and the Fed’s ears — the labor market and inflation are cooling but not at a recessionary level.”
“This is another strong payrolls report that shows no signs of labor demand slowing to a rate that would lead to a loosening in labor market conditions.”
Brian Coulton
Chief Economist, Fitch Ratings
Adam Hetts, global head of multi-asset at Janus Henderson, called it “an ostensibly strong labor report [that] has some mixed messages under the surface, and overall should keep current rate cut expectations in line.”
Hetts said in an email that “strong payrolls at 275k, unemployment still below 4%, and strong enough wages are great news for the U.S. economy but potentially bad news for sticky inflation. On the other hand, there were large revisions to prior months, unemployment moved up, and wages were below expectations.”
Some economists still see too much strength in the labor market. The Labor Department reported Wednesday that U.S. employers posted 8.86 million job vacancies in January, down only slightly from 8.89 million in December.
“This is another strong payrolls report that shows no signs of labor demand slowing to a rate that would lead to a loosening in labor market conditions,” said Brian Coulton, Fitch's chief economist, about today’s release. Coulton pointed out that while average hourly earnings growth eased on a month-on-month basis, the three-month annualized rate remained stuck at 4.3%.
The AICPA & CIMA Economic Outlook Survey released on Thursday showed finance executives (those with CPA and CGMA certifications) gaining confidence in the U.S. economy in February, with 37% of them indicating they had too few employees, and 22% indicating they were looking to hire immediately.
Layoffs Continue
At the same time, U.S. companies pared payrolls by significant amounts last month.
“Businesses are aggressively slashing costs and embracing technological innovations, actions that are significantly reshaping staffing needs.”
Andrew Challenger
Senior VP, Challenger, Gray & Christmas
U.S.-based employers announced 84,638 cuts in February, the highest total for the second month of the year since 2009 and 3% more than were announced in January, according to the Challenger, Gray & Christmas layoffs report released Thursday.
So far this year, companies have announced plans to cut 166,945 jobs, down about 8% from the 180,713 cuts announced in January and February last year.
Several industries saw large jumps in announced job cuts in February: industrial goods manufacturing, energy, education, transportation, and food manufacturers and producers.
Andrew Challenger, senior vice president of Challenger, Gray & Christmas said, “Businesses are aggressively slashing costs and embracing technological innovations, actions that are significantly reshaping staffing needs.”
If the labor market continues on a weakening path over the next couple of months, State Street’s Arone said, “the Fed will likely be cutting rates this summer.”
Indeed, based on Fed funds futures pricing as of 10:50 a.m. Eastern, the market was implying a near 60% chance of a 25-basis-point rate cut at the June 12 Federal Open Market Committee meeting.
The next important inflation data point is the release of the consumer price index on Tuesday, March 12.