The U.S. economy added 311,000 jobs in February and the unemployment rate rose to 3.6 percent, according to data released Friday by the Labor Department.
Economists had been expecting around 225,000 jobs to be added in February and for the unemployment rate to remain at 3.4 percent. Despite the strong headline jobs gain, the report showed signs the labor market may finally be buckling under the pressure of eight consecutive interest rate hikes by the Federal Reserve.
Average hourly earnings — a measure of wages — rose 0.2 percent in February to land at a 4.6-percent annual increase, falling below expectations.
That means wage pressures on inflation could be easing. Prices were up 6.4 percent annually in the consumer price index (CPI) and 5.4 percent annually according to the personal consumption expenditures (PCE) price index in January.
The higher payroll numbers along with the lower level of overall employment is likely a mixed bag in the eyes of Fed officials, who’ve struck a more aggressive tone in recent weeks after the latest PCE report saw inflation tick back up.
The Federal Open Market Committee (FOMC), the Fed’s interest rate-setting panel, is set to meet in Washington, D.C., next week and deliver another rate hike. The bank boosted rates by 0.25 percentage points in January and markets believe the Fed is on track for another hike of that size next week, according to financial company CME’s FedWatch Tool.
The report comes on the heels of a surprisingly strong January jobs report in which 517,000 jobs were added to the economy. The January numbers were revised down but only slightly to 504,000.
Analysts are saying the slowdown in wage growth could be the most significant data point for the Fed, since higher labor costs are traditionally associated with higher prices.
“Wage growth [is softening], easing fears of reaccelerating inflation,” ZipRecruiter chief economist Julia Pollak wrote in an analysis on Friday. “Wage growth was lower than expected, slowing to 3.6 percent from 4.4 percent on a 3-month annualized basis.”
Inflation has outpaced wage growth significantly over the course of the pandemic, eating into paychecks and resulting in negative real wage growth even though paychecks have been rising nominally.
The report also showed that the civilian labor force increased by 419,000 people, or about a quarter of a percent. The labor force participation rate also increased slightly to 62.5 percent in February from 62.4 percent in January.
“Labor supply cools off wage growth pressures and increases the output which reduces inflationary pressures. Every time you revise up your estimate of labor supply, as most should be doing, think of it as reducing the need for rate hikes,” wrote Adam Ozimek, chief economist Economic Innovation Group think tank, in a Friday tweet.
Friday’s jobs number means the ratio of job seekers to open jobs dropped down to 1.8 from 1.9, another sign that inflation pressure from the job market could be easing. A broader measure of unemployment that counts people who are out of work but not currently seeking it puts that ratio even lower.
“The ratio of job openings to unemployed workers ticked downwards to 1.8. While a 50 basis point rate increase is still on the table, the Fed may be content to take it slow, given some signs of slackening labor market conditions,” ZipRecruiter’s Pollak added.
—Updated at 10:09 a.m.