US employers hire workers at robust pace
Strong data set stage for Fed rate hike
WASHINGTON, March 11, (RTRS): US employers hired workers at a robust pace in February, beating expectations, and wages grinded higher, which could give the Federal Reserve the green light to raise interest rates next week despite slowing economic growth.
Nonfarm payrolls increased by 235,000 jobs last month as the construction sector recorded its largest gain in nearly 10 years due to unseasonably warm weather, the Labor Department said on Friday. January’s employment gains were revised up to 238,000 from the previously reported 227,000.
Fed Chair Janet Yellen signaled last week that the US central bank would likely hike rates at its March 14-15 policy meeting.
Job gains averaged 209,000 per month over the past three months, well above the 75,000 to 100,000 needed to keep up with growth in the workingage population.
“The report seals the deal for a rate hike next week. The labor market is where the Fed wants it to be,” said Gus Faucher, deputy chief economist at PNC Financial in Pittsburgh.
Last month’s brisk clip of hiring was accompanied by steady wage growth, with average hourly earnings rising 6 cents, or 0.2 percent. January’s wage growth was revised up to 0.2 percent from the previous 0.1 percent gain. That lifted the year-on-year increase in wages to 2.8 percent from 2.6 percent in January.
The unemployment rate fell onetenth of a percentage point to 4.7 percent, even as more people rushed into the labor market, encouraged by the hiring spree. Economists had forecast employment increasing by 190,000 jobs last month. US stocks rose, but gains were curbed by the prospect of higher borrowing costs.
The dollar fell against a basket of currencies amid disappointment that wages were only growing gradually. The greenback was also hurt by news that the European Central Bank had discussed the possibility of raising interest rates before the end of its quantitative easing program.
Prices for US government bonds rose, with the yield on the benchmark 10-year Treasury note retreating from a 12-week high.
With the labor market near full employment, wage growth could speed up as companies are forced to raise compensation to retain employees and attract skilled workers. A proxy for take-home pay rose a solid 0.5 percent in February.
The annual wage increase is close to the 3 percent to 3.5 percent range that economists say is needed to lift inflation to the Fed’s 2 percent target. Inflation is already firming, in part as commodity prices rise.
Rising inflation, together with a tighter labor market, stock market boom and strengthening global economy, has left some economists expecting that the Fed could increase rates much faster than currently anticipated by financial markets.
The US central bank lifted its benchmark overnight rate in December and has forecast three rate increases for 2017.
“We continue to expect the Fed to raise its policy rate by an above-consensus four times this year,” said Paul Ashworth, chief US economist at Capital Economics in Toronto.
Job growth has averaged more than 186,000 per month since January 2010. While Donald Trump’s victory in last November’s presidential election sparked a stock market rally and jumps in consumer and business confidence, there has been no surge in either business or consumer spending.
Data ranging from trade to consumer and business spending suggest the economy slowed further early in the first quarter after growing at a 1.9 percent annualized rate in the final three months of 2016. The Atlanta Fed is forecasting gross domestic product growing at a 1.2 percent rate this quarter.
“It’s important to remember that President Trump inherited an economy that was already making steady progress towards full employment,” said Elise Gould, a senior economist at the Economic Policy Institute in Washington.
The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, increased one-tenth of a percentage point to 63 percent in February, the highest level since March 2016.