The February jobs report was a bit of a mixed bag with the unemployment rate rising even as the economy added more jobs last month than economists had expected.
The unemployment rate ticked up to 3.6 percent, though economists had been expecting it to stay down at the January level of 3.4 percent—a more than 50-year low. The economy added 311,000 jobs while analysts were expecting a monthly increase of only 225,000.
Perhaps most significantly, wages increased only 0.2 percent from January to February, averaging out to an increase of just 3.6 percent over the last three months
This is important for the Federal Reserve as it weighs further interest rate hikes, which slow the economy down in order to combat inflation. If the central bank perceives wage growth to be slowing, it could ease up on the pace or duration of its rate hikes, which could put the economy on a path to steadier growth.
Here’s what the latest job numbers mean for the economy.
Conditions for workers overall still remain strong
While higher joblessness could be a harbinger of tougher conditions for workers as the year goes on, they’re still pretty good overall.
The ratio of unemployed persons to job openings is now 1.8, according to Labor Department data, so there are roughly two available jobs for every person looking for one now in the U.S.
The civilian labor force increased by about 419,000 people, and the labor force participation rate also increased slightly to 62.5 percent in February from 62.4 percent in January. Higher labor force participation means higher unemployment could largely be a reflection of more people feeling encouraged to look for jobs.
“The report suggests U.S. workers are enjoying the best of both worlds—robust job growth paired with easing inflationary pressures. And employers have much to celebrate too, with participation picking up,” ZipRecruiter chief economist Julia Pollak wrote in an analysis.
All eyes are on next week’s inflation data
The mixed numbers in the February jobs report mean that highly anticipated inflation data could break the tie between a quarter- and half-percentage point rate hike at the next Fed policy meeting.
The Labor Department is set to release the latest update to the consumer price index (CPI), a highly influential gauge of inflation, next Tuesday, a week before the Fed’s rate-setting Federal Open Market Committee (FOMC) is set to meet March 21-22.
Consumer prices have been falling since the middle of last year, but the January CPI came in higher than expected, dropping to a 6.4 percent annual increase from 6.5 percent when analysts were thinking it would drop to 6.2 percent.
On a monthly basis, the CPI ticked up 0.5 percent in January when it had increased only 0.1 percent and 0.2 percent in the two months prior.
The White House Council of Economic Advisors (CEA) indicated they were looking ahead to the release of CPI in February, which comes out on Tuesday.
“We do not have the inflation report for February yet, which will include real wage growth,” CEA economists wrote on Friday.
The full effect of rate hikes has yet to be felt
The Fed has jacked up interest rates eight times in a row over the last year, and the full force of those hikes has yet to be felt throughout the economy.
“Over the past year, we’ve taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do,” Federal Reserve Chair Jerome Powell said during a Senate hearing Tuesday.
That means the uptick in unemployment seen in Friday’s job report, which is the largest move in the metric since October of last year, could be the start of a larger acceleration.
“Once the economy starts shedding jobs, it’s kind of like a runaway train. It’s really hard to stop,” Sen. Elizabeth Warren (D-Mass.) warned Powell during the meeting of the Senate Banking Committee.
This could be just the beginning of rising unemployment
The Fed is currently expecting to see about 2 million put out of a job this year in total in order to tamp down inflation, according to its most recent summary of economic projections, which were put out in December.
That number will be updated next week along with how high the Fed expects to hike its baseline interest rate for this year, which now stands at 5.1 percent but is expected to go higher.
The number of people who lost jobs in February along with persons who completed temporary jobs increased by 223,000 to 2.8 million, the jobs report said.
Jobs in the information technology sector decreased by 25,000. Transportation and warehousing jobs dropped by 22,000, including 9,000 in truck transport. Employment was up in leisure and hospitality and in the retail sector.
Pressed by Sen. John Kennedy (R-La.) this week during a Senate hearing about whether he was trying to put people out of work, Powell said the central bank’s policies were not meant to raise the unemployment rate.
“No, we’re not trying to raise it. We’re trying to realign supply and demand,” Powell said.
Is inflation even coming from the labor market? Workers could pay the price either way
Inflation fell sharply through the second half of last year even as the unemployment rate hovered around record lows, which seemed to violate some long-established principles in the economics field.
Wages have not kept pace with inflation during the pandemic, and Friday’s jobs report showed that wage growth is continuing to fall off even as prices in the latest PCE price index ticked back up.
“Three-month average wage growth was 3.6 percent annualized in February, substantially lower than the 5.1 percent average over the same three months last year, and lower [than] it was over 2022,” the White House Council of Economic Advisors wrote in a blog post about the jobs report on Friday.
The trend in three-month wage growth appears to be downward, sliding to 3.6 percent from around 6.5 percent in the middle of 2021, although economists note that the data is somewhat noisy.
The missing part of the equation may lie in profits, which reached record highs in the aftermath of the pandemic and which are taking up a larger share of value in the economy.
Profit shares are still far above their pre-pandemic levels, which hovered around 12 cents on the dollar in the decade before the pandemic and have reached as high as nearly 17 cents on dollar since. The United Nations pointed this out in a report last year, attributing inflation to “price-setting firms in highly concentrated markets raising their mark-ups.”
More targeted fiscal policies to address company behaviors in specific sectors – such as durable goods, groceries and housing, which have all experienced different inflationary cycles – have so far not been generally considered by Congress.