Soaring US Employment Growth Underlines Economic Strength as Headwinds Rise | Investment news

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WASHINGTON (Reuters) – U.S. employment growth accelerated in February, pushing the unemployment rate to a two-year low of 3.8% and increasing optimism that the economy could withstand mounting headwinds from geopolitical tensions, inflation and more restrictive monetary policy.

Friday’s carefully monitored Department of Labor employment report also showed the economy created 92,000 more jobs than initially estimated in December and January. He suggested that the job market was overcoming the COVID-19 pandemic and that the economy was weaned off government money.

Although average hourly wages remained flat last month, this was due to the return of workers in low-income sectors and a calendar distortion. Companies are raising wages to attract scarce workers, which is contributing to higher inflation.

Economists said that in the absence of Russia’s war against Ukraine, which pushed up the prices of oil, wheat and other commodities, the strong employment report would have prompted the Federal Reserve to raise interest rates. half a percentage point at the end of this month.

“On balance, despite the weakness in wages, this is another in a long line of reports suggesting the Fed should have started raising rates years ago,” said Chris Low, chief economist at FHN Financial in New York. . “The Fed has its job stopped if it wants to slow demand enough to stabilize the unemployment rate at 4%.”

The factory survey showed that non-farm payrolls increased by 678,000 jobs last month, leaving 2.1 million jobs below the pre-pandemic level. Economists predict that all lost jobs will be recouped by the third quarter of this year.

Fed Chairman Jerome Powell this week described the job market as “extremely strained” and told lawmakers he would support a 25 basis point interest rate hike at the US central bank policy meeting on March 15-16. Economists expect up to seven rate hikes this year.

Employment growth was spurred by mitigation of COVID-19’s Omicron variant infections. At least 1.6 million people said they were not at work last month due to illness, down sharply from a record of 3.6 million in January.

Economists interviewed by Reuters predicted that wages would rise by 400,000 jobs, with estimates ranging from a low of 200,000 to a high of 730,000. The large increase in employment in February was led by the leisure and hospitality sector, one of the sectors most affected by the Omicron variant.

Wages for leisure and hospitality increased by 179,000 jobs. Employment in restaurants and bars increased by 124,000, while hotels and motels added 28,000 employees. Employment in the professional and business services sector increased by 95,000 jobs.

Retailers added 37,000 jobs. Wages in the manufacturing sector increased by 36,000 jobs, while construction jobs increased by 60,000. Government employment increased by 24,000 jobs.

The relationship was, however, overshadowed by the Russia-Ukraine war. Wall Street shares fell sharply at the start of trading before cutting some losses as the dollar rose against a basket of currencies as investors sought safe havens. US Treasury yields fell.

The Russian invasion of Ukraine has pushed oil prices above $ 100 a barrel, which will keep inflation in the US boiling for a while and hurt consumer spending in the short term.

The unchanged reading of the average hourly wage followed a 0.6% increase in January. Data for the employment report is collected during the week that includes the 12th day of the month.

“There is a very well-established pattern when the 15th of the month falls on a Saturday that typically increases that month’s average hourly earnings and the following month falls to the downside,” said Robert Rosener, senior economist at Morgan Stanley in New York. “This was the case in January, when the 15th of the month fell on a Saturday … and February was expected to show a return that would drag the figure.”

Wages rose 5.1% in the 12 months to February after rising 5.5% in January. The wages of production workers and non-surveillance workers have increased by 0.3% since January.

The average working week increased to 34.7 hours from 34.6 in January. Aggregate hours worked rebounded 0.8%, which bodes well for economic growth this quarter.

“With the rebound in hours worked and further earnings forecast for March, real GDP is projected to increase by nearly 3% (annualized rate) in the first quarter,” said Brian Bethune, a professor of practice at Boston College. “The massive ‘Black Swan’ invasion of Ukraine, combined with the related leaps in the prices of crude oil and other commodities, however, throws some sand at the growth mechanism in the first half.”

The details of the household survey from which the unemployment rate is derived were equally strong. Household employment increased by 548,000 jobs, more than enough to absorb the 304,000 people who entered the world of work.

The unemployment rate fell two-tenths of a percentage point to 3.8% last month, the lowest level since February 2020. The labor force participation rate, or the percentage of Americans of working age who have jobs or are looking for one, it increased to 62.3%, the highest level since March 2020, from 62.2% in January.

Men accounted for the increase, with 479,000 entering the workforce, while 48,000 women left.

“More individuals on the payroll means greater aggregate purchasing power on the part of consumers,” said Peter Essele, head of portfolio management at Commonwealth Financial Network in Waltham, Massachusetts. “The result could create a strong second half as more new hire spending goes to goods and services. If the current trend continues, today’s equity markets will look like a bargain by the end of the year.”

The employment-to-population ratio, seen as a measure of an economy’s ability to create jobs, rose to 59.9%, also the highest since March 2020, from 59.7% in January.

But the number of people working part-time for economic reasons jumped from 418,000 to 4.1 million. This raised a broader measure of unemployment, which includes people who want to work but have stopped looking and those who work part-time because they can’t find a full-time job, to 7.2% from 7.1% of January.

(Reportage by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Paul Simao)

Copyright 2022 Thomson Reuters.

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