SMASHES EXPECTATIONS…

The U.S. economy enjoyed the biggest hiring spree since mid-2016 in February as workers streamed in from the sidelines of the labor force, but inflation pressures remained muted amid signs the pay gains that spooked financial markets last month haven’t taken hold.

Payrolls rose 313,000 in February, compared with the 205,000 median estimate in a survey of economists, and the two prior months were revised higher by 54,000, Labor Department figures showed Friday. The jobless rate held at 4.1 percent, the fifth straight month at that level. Average hourly earnings increased 2.6 percent from a year earlier following a downwardly revised 2.8 percent gain.

U.S. stock futures and bond yields rose, as the report signaled the labor market remains strong and will keep driving economic growth. The wage figures show a cooling from a pace that spurred financial turbulence last month on concern that the Federal Reserve could raise interest rates faster.

While the unemployment rate remains well below Fed estimates of levels sustainable in the long run, the rise in participation suggests the presence of slack that would keep policy makers to a gradual pace of hikes.

“This is a report that’s going to strengthen the argument of some of the doves on the Fed, that people came back to the labor force last month — that’s a positive sign for the U.S. economy,” Alan Krueger, a Princeton University professor who served as chairman of the Council of Economic Advisers under President Barack Obama, said on Bloomberg Television. “We’ll see how long that can continue.”

For now, rising labor-force participation may be a factor holding down wage gains. The participation rate increased to 63 percent, the highest since September, from 62.7 percent the prior month, the biggest monthly gain since 2010. The number of employed people in the workforce rose by 785,000, according to the report.

Powell’s Debut

Fed policy makers are widely anticipated to raise interest rates when they next meet March 20-21 in Jerome Powell’s first gathering as chairman. A bigger question is whether central bank officials maintain projections for a total of three quarter-point hikes this year, or boost the outlook to four.

Average hourly earnings rose 0.1 percent from the prior month following a 0.3 percent increase, the report showed. In the 12 months ended in February, analysts had forecast a monthly gain of 0.2 percent and an annual increase of 2.8 percent.

Employees worked more hours last month, which also may have played a role in the wage numbers. The average workweek for all private employees increased to 34.5 hours, from 34.4 hours. The initial data for January had shown a shorter workweek of 34.3 hours, which had the effect of boosting average hourly pay.

What Our Economists Say

The jobs report shows healthy economic conditions at the start of the year, as reflected in both the magnitude of gains as well as the healthy dispersion of job creation. The rebound in the workweek and solid payroll print provide strong indications that the economy is poised to buck the trend of recent years, whereby GDP growth was soft in the first quarter, rebounded in the second quarter and leveled out in the second half — a pattern economists call “residual seasonality.” Thanks to the fiscal stimulus from tax reform, this seasonality is unlikely to recur in 2018.

— Carl Riccadonna, Bloomberg Economics

A separate gauge was more positive for wage growth. Average hourly earnings for just production and non-supervisory workers rose 2.5 percent from a year earlier, following a 2.4 percent gain in January.

Hiring was strong across the board and particularly in goods-producing industries. Construction businesses added 61,000 jobs, while factories boosted payrolls by 31,000. Service providers added 187,000 workers, including about 50,000 in retail, a sector that has been under pressure.

“The upturn in the U.S. labor market will continue, with the effect of the tax reform, the weak U.S. dollar, interest rates are still low, and I expect more investment,” said Dirk Chlench, head of bond research at Landesbank Baden-Wuerttemberg. He had estimated 300,000 job gains, the highest projection in Bloomberg’s survey. “There’s every reason to be optimistic about the U.S. economy.”

Growth in worker pay has been modest during most of this expansion, especially relative to how tight the job market is running. President Donald Trump has said the tax-cut legislation he signed in December will spur economic growth and boost jobs and wages. At the same time, his tariffs on steel and aluminum imports may become a headwind depending on how extensively they’re implemented and how other nations retaliate.

Other Details

  • The U-6, or underemployment rate, was unchanged at 8.2 percent; measure includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking
  • People working part-time for economic reasons rose by 171,000 to 5.16 million
  • Private employment rose by 287,000 (median estimate 205,000) after increasing 238,000; government payrolls rose by 26,000

— With assistance by Chris Middleton, Shelly Hagan, and Katia Dmitrieva

(Updates with economist’s comment in second paragraph above Other Details.)

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