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Hiring cooled last month from its sizzling pace in January, but the U.S. job market remains unusually hot, with an unemployment rate hovering near a half-century low.
Employers added 311,000 jobs in February, according to a report from the Labor Department Friday that will be closely studied by the Federal Reserve.
The unemployment rate inched up to 3.6% from 3.4% in January, as more than 400,000 people joined the workforce.
The Fed was alarmed by an earlier report showing more than half a million jobs were added in January. The central bank worries that an overheated job market could put more upward pressure on inflation.
The report shows January’s job gains were only slightly weaker than initially reported, with 504,000 jobs added that month, according to the revised figures also out on Friday.
Restaurants and hotels are among the businesses hiring
Job gains in February were widespread, with in-person service industries showing robust hiring.
“Leisure and hospitality is leading that charge,” said Nela Richardson, chief economist for the payroll processing company ADP.
The steady demand for workers shows the underlying strength “in a sector that is defined by people going out and spending on things like vacations, and hotel stays and restaurants,” Richardson said.
Construction companies added 24,000 jobs, even as rising mortgage rates continue to weigh on the housing market. The average rate on a 30-year fixed-rate home loan climbed to 6.73% this week from 3.85% a year ago, according to mortgage giant Fannie Mae.
Headline-grabbing layoffs in the tech sector put little dent in the overall employment numbers, although the information sector did show a loss of 25,000 jobs last month. Factories shed 4,000 jobs in February and the transportation and warehousing industry cut 22,000 jobs.
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The Fed is likely to stay skittish
Fed Chair Jerome Powell told lawmakers this week that a very strong job market, along with robust consumer spending and stubbornly high inflation, could prompt the central bank to raise interest rates higher – and more rapidly – than had been expected late last year.
“The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell told the Senate Banking Committee Tuesday. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
In addition to the jobs report, the Fed will be guided by a report on February inflation that’s due out next Tuesday. The central bank’s rate-setting committee meets the following week.
Historically, when the Fed tries to curb inflation by raising interest rates, it results in higher unemployment, but past experience may not be so helpful in the current environment.
“We’re in kind of a brave new world when it comes to inflation and the job market,” Richardson said. “Nothing about the pandemic recovery or the economy since that time of the pandemic really reflects historical trends.”
The Fed is also keeping a close eye on rising wages, which can contribute to higher prices, especially in labor-intensive service industries. On average, wages in February were 4.6% higher than a year ago.
“Strong wage growth is good for workers, but only if it’s not eroded by inflation,” Powell told a House committee this week.