Economic Commentary

Economic Commentary

March 4, 2022

Another big upside surprise for jobs in February – likely keeps Fed rate hike this month on track 

Executive Summary

U.S. payrolls in February jumped 678,000, the largest increase in seven months and handily topping the consensus of 420,000. It was coupled with 92,000 more jobs during December and January than previously reported.

More importantly, workers are returning to the workforce. The unemployment rate fell to 3.8% from 4.0%, while the labor force participation rate continued to climb. Wages held steady but didn’t rise month over month for the first time in over a year.

While this data was gathered prior to the escalation of the Russia-Ukraine conflict, the U.S. labor market is clearly hot, reflecting a sharp rebound in activity. Consumers are flush with cash thanks to continued wage & income growth along with savings from the pandemic-relief programs. That is a powerful driver for continued above-trend economic growth.

Accordingly, the Federal Reserve (Fed) will likely hike interest rates, which is the next step in normalizing monetary policy. Yet, given the risks associated with the Russia-Ukraine conflict, the Fed will move more gradually than markets are expecting. 

A review of the major industry trends

Private payrolls increased by 654,000 workers in February, while government payrolls rose by 24,000. Service-providing industries added 549,000 positions, while goods producers hired 105,000 workers, the most in 11 months. More importantly, none of the major industry groups shed workers during the month.

The leisure & hospitality industry saw another big jump in restaurant workers of 123,700, or 69% of the industry’s total gain. Hotels added 27,500 workers, while arts & entertainment added 21,900.

The government segment added 24,000, though federal and state non-educational payrolls shrank in February. The prior weakness in educational positions has clearly abated, as both government and private education payrolls increased for the first time in six months. 

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