The U.S. economy created more jobs than expected in February as falling new COVID-19 cases and additional pandemic relief money from the government boosted hiring at restaurants, putting the labor market recovery back on firmer footing.
Though job growth momentum is expected to build in the months ahead amid an acceleration in the pace of vaccinations and more fiscal stimulus, it will probably take several years for the labor market to heal from the deep scars inflicted by the pandemic, which is now in its second year.
The Labor Department’s closely watched employment report on Friday showed at least 4.1 million Americans have been out of work for more than six months, accounting for 41.5% of the unemployed population in February. Another 3.5 million have permanently lost their jobs.
Federal Reserve Chair Jerome Powell on Thursday offered an optimistic view of the labor market, but cautioned a return to full employment this year was “highly unlikely.”
“Looking ahead, it appears the ship is pointed in the right direction and the additional stimulus coming from Congress should be the wind in the sails to get the economy back on track,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
Nonfarm payrolls surged by 379,000 jobs last month after rising 166,000 in January. Payrolls fell in December for the first time in eight months. Employment remains 9.5 million below its pre-pandemic level. Economists polled by Reuters had forecast February payrolls increasing by 182,000 jobs.
Restaurants and bars hired 286,000 workers last month, accounting for 75% of the gain in payrolls. There were also increases in employment at other leisure and hospitality businesses.
Temporary help, seen as a harbinger for future hiring, increased further. Healthcare and social assistance also added jobs, and retailers hired 41,000 workers. Manufacturing payrolls increased by 21,000 jobs. But construction employment decreased by 61,000 jobs because of bitter cold across the country.
“At this pace employment would not return to its pre-recession peak for almost seven years,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.
The labor market has been slow to respond to the drop in daily coronavirus cases and hospitalizations, which helped fuel a boost in consumer spending in January that prompted economists to sharply upgrade their gross domestic product growth estimates for the first quarter.
Historically, employment lags GDP growth by about a quarter, but the catching up started in February, a year after the economy fell into recession at the start of the U.S. COVID-19 outbreak. February’s strong payrolls growth could further stoke fears of inflation, which have boosted U.S. Treasury yields.
U.S. stocks opened higher. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.
Graphic: U.S. unemployment – https://graphics.reuters.com/USA-ECONOMY-JOBS/010011CJ4GM/us-unemployment.jpg
AMPLE SLACK REMAINS
There are worries that the Fed’s ultra-easy monetary policy stance and very accommodative fiscal policy, including President Joe Biden’s $1.9 trillion recovery plan, which is under consideration by Congress, could unleash high inflation.
Even as the labor market recovery is back on track, ample slack remains. Though the unemployment rate fell to 6.2% last month from 6.3% in January, it continues to be understated by people misclassifying themselves as being “employed but absent from work.” Without this problem, the unemployment rate would have been 6.7%, and is close to 10%, including people who have given up the search for work.
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was steady at 61.4% in February. The participation rate has declined significantly during the pandemic, with women accounting for the biggest share of dropouts.
According to Census Bureau data, around 10 million mothers living with their own school-age children were not actively working in January, 1.4 million more than during the same month in 2020.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)