An interesting February jobs report revealed better-than-expected job additions and slowing wage growth while putting even more of the focus for the concerned real estate and mortgage industries on the Federal Reserve’s impending March meeting.
The hotly anticipated employment situation summary from the U.S. Bureau of Labor Statistics showed that nonfarm payrolls grew by 311,000 jobs last month, handily surpassing expectations. Economists polled by Reuters expected job gains of 205,000, while Bloomberg’s consensus was at 225,000. The strong February additions pushed the labor market’s streak of exceeding the Bloomberg projection to an astounding 11 months, signaling that employment continues to maintain momentum even as the Fed has continued its hawkish economic policy.
Many of the jobs created in February came within the leisure and hospitality sector. The segment was battered by the COVID-19 pandemic but continues to claw its way back, adding 105,000 positions last month, mostly in food and drink establishments. Jobs in the sector are still about 410,000 below their pre-pandemic level, but the strong February helped. Other sectors with strong gains included retail, which grew by 50,100 jobs; government, which was up 46,000; and professional and business services, which increased by 45,000.
More people are also entering or reentering the job market to look for work, as the labor participation rate edged upward from 62.4% in January to 62.5% last month. It’s a small increase, but it brought the participation rate to its highest point since March 2020, when the pandemic was first taking hold. The additions to the labor force did cause the unemployment rate to nudge upward to 3.6%, although the previous rate of 3.4% was the lowest since 1969.
But perhaps the better news in the report for real estate and mortgage lending activities was the slowing pace of wage growth, with average hourly earnings up 0.2% in February. That’s down from 0.3% in January — and down across most employment sectors. The three-month annualized rate of wage growth is now down from 4.4% to 3.6% — a pace which, if sustained, would move earnings growth to a range consistent with 2% inflation, assuming recent trends hold, per Wells Fargo.
And with labor-force participation poised to trend upward, more wage moderation could be in the cards, according to deputy chief economist Odeta Kushi of First American Financial Corp.
“A stronger prime-age labor-force participation rate means a higher supply of labor and thus could help companies fill open jobs,” she said. “The mismatch between labor supply and demand is a driver of wage growth, so more labor supply could help to counter wage growth.”
All in all, the mixed jobs report offered enough balance to raise hope for an oft-discussed “soft landing” for the U.S. economy. While a hike in the Federal Reserve’s benchmark interest rate seems inevitable given Fed Chair Jerome Powell’s comments earlier this month, there may be enough easing in the still-tight labor market to dial back concerns of a 50-basis-point increase.
“In the topsy-turvy, upside-down economic world we are in, rising unemployment and falling wage growth are a good thing for the inflation fight,” Kushi quipped.