Solid US job gains forecast for February; Unemployment rate falls to 3.9%

FILE PHOTO: A restaurant advertising jobs is trying to attract workers in Oceanside, California
FILE PHOTO: A restaurant advertising jobs aims to attract workers in Oceanside, California, U.S., May 10, 2021. REUTERS/Mike Blake/File Photo/File Photo

March 4, 2022

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. employers likely maintained a strong hiring pace in February, pushing the job market closer to peak employment, but mounting headwinds from geopolitical tensions could weigh on business confidence and slow job growth in the coming months.

Friday’s closely-watched jobs report from the Labor Department is expected to show labor market conditions tightening further, with the unemployment rate resuming its downward trend and labor shortages continuing to push wages higher.

Federal Reserve Chair Jerome Powell this week described the labor market as “extremely tight” and told lawmakers he would support a 25 basis point rate hike at the March 15-16 Federal Reserve policy meeting and “prepared to move more aggressively” later if inflation does not ease as quickly as expected.

Oil prices have soared above $100 a barrel since Russia launched a war on Ukraine last Thursday, citing a spate of sanctions against Moscow by the United States and its allies.

“The jobs report will show that the US economy is healthy and continues to move forward,” said Sung Won Sohn, professor of finance and economics at Loyola Marymount University in Los Angeles. “But geopolitical issues will push up inflation and have created a tremendous amount of uncertainty that will dampen future economic growth and employment.”

The business survey is expected to show nonfarm payrolls rose 400,000 jobs last month, after rising 467,000 in January, according to a Reuters poll of economists.

That would put employment 2.5 million jobs below pre-pandemic levels. Economists expect any lost jobs to be made up again this year. February salary estimates range from just 200,000 job gains to as much as 730,000.

Payrolls rose sharply in January despite a record 3.62 million people being absent from work due to illness in mid-month as the nation was battered by a winter wave of cases brought on by the Omicron variant of COVID -19 were caused.

Since then, infections have fallen sharply. The Census Bureau’s Household Pulse Survey found about 7.8 million people were away from work as of early February because they were caring for someone or because they were ill with coronavirus symptoms, down 1 million from early January.

The number of unemployment benefit recipients was the lowest in 52 years in mid-February. Data from Homebase, a payroll and tracking company, also points to strong employment gains, showing a significant increase in the number of employees employed and hours worked in mid-February.

Shift work in February posted its biggest monthly increase since spring 2020, another survey by workforce management software company UKG found.


But payrolls could fall short of expectations after a survey by the Institute for Supply Management on Thursday showed a measure of service-sector employment for the first time since last June, which ended in February. The ISM reported earlier this week that manufacturing jobs growth had slowed over the past month.

The Fed’s Beige Book report on Wednesday showed that “widespread strong demand for labor continued to be hampered by equally widespread reports of labor shortages.” At the end of December there were a record 10.9 million job offers.

“I’m leaning toward a lower number of payslips, but with a pretty good payslip,” said James Knightley, chief international economist at ING in New York. “Everything indicates that companies are looking to hire and also retain employees due to these high turnover statistics.”

Job gains over the past month were likely concentrated in the leisure and hospitality industries, as well as retail and other sectors hit hardest by Omicron in January. Modest gains in professional and business services employment are likely, as the ISM survey showed that firms in this industry “struggled to hire direct workers rather than non-salaried workers”.

The unemployment rate is expected to fall to 3.9% from 4.0% in January. Economists believe the labor force participation rate, or the proportion of working-age Americans who have or are looking for a job, likely increased over the past month.

Amid labor shortages, average hourly wages are forecast to rise 0.5% in February after rising 0.7% in January. That would take annual wage growth to 5.8% from 5.7% in January. Wages were increased in January as Omicron kept some lower hourly workers at home.

Economists said the February jobs report would support a 25 basis point rate hike by the Fed this month. Following the January jobs report and hot inflation data, financial markets have priced in a half a percentage point hike.

But that is now off the table in the face of concerns about the fallout from the Russia-Ukraine war. Economists expect up to seven rate hikes this year.

“Indeed, the current energy price shock poses a real challenge for central bankers,” said Gregory Daco, chief economist at EY-Parthenon in New York. “Given the high inflation environment, Fed policymakers will want to balance the risk of a ‘stagflationary’ shock and a switch to a higher inflation regime with the risk of normalizing monetary policy too quickly and accelerating the ongoing tightening of financial conditions.”

The work week, impacted by Omicron in January, is expected to increase to 34.6 hours from 34.5 hours.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci) Solid US job gains forecast for February; Unemployment rate falls to 3.9%

Caroline Bleakley

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