Hiring rose in February in the United States as more people were seen joining the workforce, underlining the fact that the U.S. economy could potentially continue at the same pace without overheating.
Reacting to the payrolls report, the equity markets have pushed the major indices higher on the day while the U.S. dollar was met with a subdued reaction.
Data from the Labor Department showed that the U.S. economy added 313,000 jobs on a seasonally adjusted basis in February. This was much higher than the median estimates that were forecast by the economists, and February’s numbers were the highest since July 2016.
Almost all sectors of the economy were seen contributing to the job creation as hiring rises in February. The most notable gains came from the construction and retail services sectors. Other sectors including mining and business services and manufacturing chipped in.
Over 800,000 workers were seen joining the workforce last month. Despite the strong pace of increase in jobs, the U.S. unemployment rate was seen to be holding steady at 4.1%. Economists were forecasting that the unemployment rate could fall to 4.0% in February.
Wage growth was also seen to be muted which comes from the fact that with more people joining the labor force, the expanding pool of workers kept demand for higher wages in check.
Average hourly earnings in the U.S. for the private sector were seen rising 2.6% on the year in February. This was a slower pace of increase compared to January’s 2.8% when wage growth increased sharply in January.
The Federal Reserve has been pinning hopes of higher wage growth which is expected to push inflation higher. Despite a strong stretch of economic data, the U.S. inflation rate has remained largely flat and still below the Fed’s 2% inflation target rate. With a slower pace of wage hikes despite an expanding workforce, the Federal Reserve is expected to take a less aggressive path on interest rate hikes, a fact that had previously gotten investors worried.
The payrolls data for January showed the biggest increase since the end of the recession and the markets were concerned on the fact that higher paychecks could quickly lead to a strong build up in inflation. However, Friday’s report saw January’s wage growth being revised down.
The payrolls report comes out ahead of the FOMC meeting that is due in two weeks time. In the December Fed meeting, central bank officials projected three quarter point increases to the Fed funds rate. The first rate hike of this year is expected to be announced at the meeting in March.
There has also been speculation building up that the central bank could potentially add another rate hike this year, which would mean that interest rate hikes could come in almost every quarter.
The broad dynamics in the labor market was clearly evident but the fact that workers who were not previously seeking work joining the workforce was seen as a positive. The downside risk was of course the fact that wage growth remains muted.
A few weeks ago, the newly appointed Fed Chair, Jerome Powell gave his two-day testimony to the U.S. Congress. In his testimony, Powell said that there was capacity for the U.S. unemployment rate to fall below 4.0% without the economy overheating.
Looking deeper into the report, despite the unemployment rate staying low, other measures of unemployment were still elevated. This indicated that there was still a lot of spare capacity in the markets that companies can tap into without concerns of rising wages.
The underemployment rate of U-6 was seen 8.2% in February. The report covers workers in part time jobs or discouraged to seek work.