Nonfarm payrolls surge by 313,000; unemployment holds steady at 4.1%.
If you only looked at the unemployment rate, which was unchanged at 4.1%, you might think that the February employment report was a disappointment. Think again.
Economists had expected the jobless rate to decline to 4.0%, besting what was already a 17-year low. That didn’t happen, but the underlying reason doesn’t signal a softening of the economy or labor market conditions – quite the contrary.
The economy added a much better than expected 313,000 jobs in February – the best monthly gain since July 2016. On top of that, upward revisions to the preceding two months lifted the total increase in payrolls since the January report to 367,000. By any measure, that’s an outstanding result.
What held the unemployment rate up wasn’t a lack of job creation, but a meaningful increase in labor force participation from formerly sidelined workers re-entering the workforce. That ratio increased by 0.3% in February to 63%, a sign that tight labor market conditions are luring people that have not been looking for work back into those ranks.
Wage growth was moderate for the month. Average hourly earnings rose by 0.1%, but the year-over-year gain of 2.6% still suggests some acceleration in wage gains relative to recent years.
Some combination of continued labor force growth and productivity gains will be needed for the economy to sustain growth. While the entrance of aging baby boomers into their retirement years since the early 2000s was a significant driver in the gradual decline in labor force participation, there appears to still be room to move more potential workers from the sidelines and back into the ranks of the employed.
The bottom line is that the labor economy remains very strong, and increasingly tight labor market conditions are now helping to boost the size of the labor force. That may constrain wage gains to a degree, but the mismatch between the skills employers need and the skills that applicants have will likely keep the pressure on to retain talent through competitive wages and benefits.
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