The U.S. economy added 678,000 jobs in February and the unemployment rate fell to 3.8 percent, the Department of Labor said Friday.
Economists had expected the economy to add 400,000 jobs and the unemployment rate to tick down to 3.9 percent. The range of forecasts by economists surveyed by Econoday was between a gain of 200,000 to a gain of 650,000, so the actual figure topped even the most bullish predictions for the second consecutive month.
The job figure for December was revised up by 78,000, from a gain of 510,000 to 588,000. January was revised up by 14,000, from 467,000 to 481,000. With these revisions, employment in December and January combined is 92,000 higher than previously reported.
The workforce participation rate ticked up from 63.2 percent to 63.3 percent, a pandemic high but still below the prepandemic level.
Private-sector payrolls grew by 654,000, nearly double the 330,000 expected.
Average hourly earnings were flat with the prior month, likely an indication that many of the jobs added were lower-wage positions. Compared with a year ago, average hourly earnings are up 5.1 percent, highlighting the strong demand for labor in the U.S. economy. Unfortunately, consumer prices are up by even more, so wages are not keeping up with inflation and even larger paychecks do not go as far as they did prior to the onset of the Biden administration inflation surge.
Employment in leisure and hospitality grew by 179,000 in February, including 124,000 jobs in bars and restaurants and 28,000 in hotels and motels. This category is, however, still down 1.5 million jobs, or 9 percent, compared with February 2020.
Construction returned to job growth in February, adding 60,000 jobs after being more or less flat in January. About three-fourths of the over-the-month job gain occurred in specialty trade contractors. Construction employment is 11,000 below its February 2020 level.
Manufacturing added 36,000 jobs, much more than January’s upwardly revised 16,000 and better than the 20,000 forecast.
The economy rebounded from the pandemic much faster than expected. The labor market, in particular, quickly recovered much of the damage down by 2020’s lockdowns and social distancing, with the unemployment rate dropping much faster than expected. Demand for goods soared as American incomes were pumped up with stimulus money from various government programs and social distancing rules left people bereft of many of the leisure services activities–sports, concerts, travel, movies–that typically would have drained bank accounts.
The supply side of the economy could not keep up with the shift into spending on goods, especially with many exporting countries also struggling with the pandemic. China’s ports have suffered a series of closures under the country’s zero-tolerance policy for Covid. Various stages of the global supply chain to build semiconductors have also broken down, creating shortages that forced makers of everything from cars, to appliances, to phones to slow production.
Unusual trade imbalances shipping containers scarce in some places, such as Asian ports, and sitting empty in others. But even as that was resolved, U.S. ports around Los Angeles were overwhelmed with incoming ships, forcing long delays. U.S. companies, fearful of shortages around the holidays, scrambled to fill shelves and warehouses early and warned consumers to do their shopping early.
Despite the signs that the demand side of the economy had recovered and the supply side was straining, the Federal Reserve continued to keep rates low, fearful of repeating past mistakes of withdrawing economic support too early. Similarly, the Biden Administration and Democrats led by House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) pushed through an enormous spending program called the American Rescue Act.
The result: an explosion of inflation that Fed policymakers and Biden administration initially insisted would be transitory. But as the supply chains remained stressed and prices continued to climb last year, Fed officials abandoned the word transitory and scrambled to pivot to an inflation-fighting stance. By the end of the year, inflation was running at seven percent, the highest in nearly 40 years.
Looking to get inflation under control, Federal Reserve chair Jerome Powell and his fellow Fed officials have signaled that they will raise their target interest rate above the zero to 0.25 percent range that has held since the pandemic struck. In congressional testimony this week, Powell signaled that he would support a hike of one-quarter of a point, to a range of 0.25 to .5, at the Fed’s next meeting in mid-March and would be open to even larger hikes if inflation remains elevated.
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