The U.S. labor market added 311,000 jobs in February, an unexpected increase considering the Federal Reserve’s goal to shrink the economy.
U.S. employers added 311,000 jobs on a seasonally adjusted basis in February, which was down from January’s robust 504,000, the U.S. Bureau of Labor Statistics reported Friday. The sectors with notable job gains were leisure and hospitality, retail trade, government, and health care.
“The labor market’s definitely been stronger at this point than we would have thought maybe six months ago,” said Citigroup Economist Veronica Clark, as per The Wall Street Journal (WSJ).
Even with the job growth for the month, the unemployment rate managed to edge up to 3.6% in February, an increase of 0.2 percentage points from January but a decrease from the 3.8% unemployment rate a year earlier. Employment declines occurred in transportation and warehousing as well as in information, the Labor Department said.
“Job gains this strong and unemployment this low might be concerning in the face of stubbornly high inflation, but there are signs that the labor market is heading toward a strong, stable, and sustainable pace of growth,” said Nick Bunker, an economist at Indeed Hiring Lab, per the WSJ.
The Federal Reserve has raised interest rates eight times since March 2022 in an effort to slow the economy and bring inflation under control. Since then, the Fed has lifted its federal funds rate from under 0.1% to its current range of 4.50% to 4.75%.
However, Federal Reserve Bank of Atlanta President Raphael Bostic has called for interest rates to go even higher through 2024 in order to avoid a repeat of patterns seen with 1970s inflation.
“I think we will need to raise the federal funds rate to between 5% and 5.25% and leave it there until well into 2024,” said Bostic in a March 1 essay titled “Striking a Delicate Balance in Making Policy.”
“This will allow tighter policy to filter through the economy and ultimately bring aggregate supply and aggregate demand into better balance and thus lower inflation,” he explained.
Still, Friday’s strong jobs report and the increase in hourly wages give credence to the idea that employers haven’t fully been phased by interest rate projections or decades-high inflation.
Average hourly earnings increased 4.6% over the past 12 months to $33.09 in February, according to Friday’s employment report.
Repeated increases to the average hourly earnings are a sign that “the economy is still overheating and a real challenge for the Fed,” Beth Ann Bovino, S&P Global Ratings economist, said, per WSJ reporting. “The concern is that when we see wage gains climb that high, that means that businesses then need to raise the price of their products.”
If inflation doesn’t go down and employment remains elevated, then the Fed will be forced to raise rates even higher than projected, which is a benchmark rate above 5% through 2023 and into 2024, according to the Summary of Economic Projections. Federal Reserve Chairman Jerome Powell has said he needs to see consistent evidence of disinflation before the Fed can move to cut rates.
Friday’s strong jobs report was not exactly the evidence Chairman Powell was looking for, though, and could lead to the Fed approving a 50 basis point rate hike at the next Federal Open Market Committee (FOMC) meeting instead of its projected 0.25% interest rate increase, according to Bankrate’s interest rate forecast for 2023. The FOMC will decide how high to raise rates at their next monetary policy meeting on March 21-22.