US jobs growth eased in February but remained elevated

US jobs growth slowed in February from the breakneck pace of the previous month, but remained elevated enough to keep pressure on the Federal Reserve to consider switching back to bigger interest rate rises.

The world’s largest economy added 311,000 jobs last month, higher than the 225,000 jobs forecast by economists but less than January’s downwardly revised 504,000 positions. Over the past three months, monthly jobs gains have averaged 351,000.

Despite February’s gains, the unemployment rate rose to 3.6 per cent, still near a multi-decade low. The labour force participation rate, which tracks the share of Americans either employed or looking for a job, inched up to 62.5 per cent.

Wage growth, meanwhile, increased 0.2 per cent from January, just shy of the previous monthly uptick in average hourly earnings and lower than expected. On a year on year basis, it is higher by 4.6 per cent.

US stock futures climbed and Treasuries extended their gains after the data release. The muted market reaction suggested investors saw reasons for optimism in the higher unemployment figure and in the smaller than expected rise in earnings.

Treasury yields — which have been falling since Thursday amid concern about US banks — dropped further as investors bet on a less aggressive Fed. The two-year yield which moves with interest rate expectations, was down 0.16 percentage points to 4.73 per cent, and reached its lowest level in two weeks.

Investors’ expectations that the Fed would revert to higher interest rate rises at its March meeting dropped and are now placing roughly even odds on a 0.5 or 0.25 percentage point increase. 

February’s report is one of the most consequential data releases ahead of the Fed’s next policy meeting on March 21-22. In congressional testimonies this week, Jay Powell, chair of the central bank, said it would be scrutinising the figures — alongside inflation and retail sales figures, among others, due next week — in order to determine whether to resume more aggressive rate rises after a deluge of unexpectedly strong data.

“They’re going to be very important in our assessment of the higher readings that we have very recently received and of the overall direction of the economy and of our progress in bringing inflation down,” he said on Wednesday, stressing that no decision had yet been made. Powell added that “the ultimate level of interest rates is likely to be higher than previously anticipated”.

In February, the Fed called time on jumbo rate rises and delivered a more traditional quarter-point increase, having repeatedly moved in half-point and three-quarter point intervals last year. At the time Powell justified the smaller rate rise by arguing that it would “better allow” officials to track progress in their goal to tame inflation and said the “disinflationary process” was under way.

But persistent labour market tightness and renewed consumer strength since then have upended expectations about the path forward for policy. Any inkling that January’s data on the whole was not a one-off will probably prompt the Fed to opt for the larger increase, economists warn.

In February, the leisure and hospitality sector saw the biggest employment gains, with jobs growth of 105,000. Retail jobs grew by 50,000 positions, while professional and business services jobs increased by 45,000.

Despite the hit to the housing and commercial real estate market from rising borrowing costs, the construction sector added 24,000 jobs.

Manufacturing, as well as transportation and warehousing, were among the few sectors to have registered little monthly growth or to have shed jobs.

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