Economy added robust 275,000 jobs in February, report shows. But a slowdown looms.
Paul Davidson, USA TODAY
Updated 6 min read
Corrections & Clarifications: An earlier version of this story misstated the month in which job gains were revised from 353,000 to 229,000. The January numbers were restated.
U.S. employers added a robust 275,000 jobs in February as hiring stayed strong despite high interest rates, persistent inflation and uncertainty about the economic outlook in a presidential election year.
But payroll gains for December and January were revised down by an outsized 167,000, portraying a much weaker picture of the recent labor market. January's booming 353,000 employment gains were downgraded significantly to 229,000, though that's still a sturdy total.
And the unemployment rate rose from 3.7% to 3.9%, the highest since January 2022, the Labor Department said Friday.
Economists had estimated that 200,000 jobs were added in February, according to a Bloomberg survey.
For some forecasters, steady downward revisions to the payroll totals since early last year add to evidence that 2024 will bring a sharp slowdown in job growth.
"The current trend in payrolls is steady, but a clear downturn is coming," says Ian Shepherdson, chief economist of Pantheon Macroeconomics.
Are wages catching up to inflation?
Average hourly pay rose 5 cents to $34.57, pushing down the yearly increase from 4.4% to 4.3%.
In January, cold and snowy weather in the Northeast and Midwest reduced the number of hours many employees worked and so artificially bumped up their hourly pay, economists say. Those effects largely reversed last month.
Since hitting a recent peak of 5.9% in March 2022, average annual wage growth has slowed as labor shortages have eased, but it’s still above the 3.5% pace Federal Reserve officials say would align with their 2% inflation goal.
The good news: Since spring last year, pay increases have outpaced inflation, giving consumers more purchasing power.
Will the Fed lower interest rates in 2024?
Economists said the report doesn’t change expectations that the Fed will probably start cutting interest rates in June, with the booming February job gains offset by the downgrades for previous months.
More significantly, yearly pay increases, which feed into inflation, dipped, giving the Fed some assurance that price increases should continue to slow. Fed Chair Jerome Powell told Congress this week that the central bank won’t begin trimming rates until it’s confident that inflation is moving sustainably toward the Fed’s 2% goal.
“The employment report does not change the view that the (Fed) will be patient in (cutting) rates,” says Nationwide economist Kathy Bostjancic. She said a rate cut will likely be on the table for May, but officials will probably wait at least until June before acting.
U.S. stocks added to their record levels on Friday after the mixed report appeared to bolster the case for easier interest rates later in the year.
The S&P 500 was 0.5% higher in morning trading and on track for its 17th winning week in the last 19. The Dow Jones Industrial Average was up 160 points, or 0.4%, as of 10 a.m. Eastern time, and the Nasdaq composite was 0.8% higher
What field is hiring the most right now?
Last month, health care led the job gains with 67,000. Leisure and hospitality, which includes restaurants and bars, added 58,000; government, 52,000; construction, 23,000; transportation and warehousing, 20,000; and retail, 19,000.
But manufacturing shed 4,000 jobs and professional and business services added just 9,000.
What is the labor force participation rate?
In February, the labor force − which includes people working and job hunting − increased by 150,000, though the share of all adults in that group held steady at 62.5%, down from a recent high of 62.8% and 63.3% before the pandemic. The Fed would like to see that participation rate rise further to curb inflation, but leading economists believe it probably has topped out now that most Americans sidelined by COVID have returned to the work force and millions of baby boomers are retiring.
What is current job growth?
Job gains have been remarkably healthy in recent months, buoyed by companies’ reluctance to lay off workers after two years of pandemic-related labor shortages. But job openings and hires have steadily declined now that a post-COVID wave of catch-up hiring and consumer spending has run its course.
Even after Friday's substantial revisions, payroll gains approached 300,000 in December and remained vibrant in January. But the December figure was likely boosted by unseasonably warm weather and the January tally was magnified by low layoff totals after the holidays, economists said. In other words, employers hired fewer seasonal workers, resulting in fewer cuts in January.
Many businesses are still hesitant to let employees go after enduring severe labor crunches over the past couple of years. But that probably will mean softer hiring in the months ahead, Nomura wrote in a research note.
More broadly, job gains have slowed just gradually despite the Federal Reserve’s sharp interest rate hikes to fight high inflation, averaging 251,000 last year, down from 377,000 in 2022.
Will the job market get better in 2024?
Economists expect a sharper pullback in hiring this year. The delayed effects of the rate increases are expected to curb household and business spending. Pandemic-related savings are running dry. And low- and middle-income Americans burdened by record credit card debt and historically high delinquencies are likely to rein in purchases.
Although yearly inflation has fallen from a 40-year high of 9.1% in 2022 to about 3%, it’s still above the Fed’s 2% target. That's straining households. Meanwhile, the sizzling labor market that followed the pandemic has simmered down: Companies have grown more cautious about bringing on workers, and more Americans have returned to the labor force, joining a wave of immigrants.
In January, employers posted 8.9 million job ads, down slightly from the previous month and a peak of 12 million in March 2022. The number of new hires slipped to 5.7 million, below the pre-COVID level. And just 3.4 million workers quit jobs, the fewest since January 2021 and a sign that many don’t have another position lined up or are less confident they can find one.
Though the job market is cooling, the picture varies by industry and occupation, says Rajesh Namboothiry, senior vice president of staffing firm Manpower North America.
Companies are bringing on fewer employees in warehousing, finance, office support and administration and stepping up the hiring of technicians, engineers, scientists and factory automation specialists, Namboothiry says.
Are more layoffs coming in 2024?
Layoffs are poised to increase. Company notices of plant closures and mass layoffs are becoming more common, says Shepherdson of Pantheon Macroeconomics. He expects job gains to slow to 50,000 to 100,000 a month by spring and summer, nudging the unemployment rate higher.
The upshot: More workers are competing for fewer jobs and finding themselves up against hundreds of other applicants for each vacancy. The crunch is forcing job seekers to send out more applications to land a position, LinkedIn said in a recent report.
