Once again, job gains exceeded expectations. The unemployment rate ticked up, reaching the highest level since January 2022. Wage growth remains robust, but moderated somewhat in February.
There's a lot of positive news in February's jobs report, especially for those hoping the Fed will begin cutting interest rates later this near.
Strong job growth, but are workers feeling optimistic?
U.S. businesses added 275,000, surpassing projections of around 200,000. This report also brought downward revisions of 167,000 for December and January's job gain totals, bringing those numbers more in line with what businesses and workers are feeling in the labor market.
Last month's report showed the economy added 353,000 in January, but revised numbers put that total at 229,000.
🔑Key takeaways for HR and business leaders:
- There was not a lot to be concerned about in February's report. The economy is growing at a robust, yet sustainable pace.
- Downward revisions for a headscratchingly hot January, combined with more modest wage growth, fuel expectations that the Fed will begin cutting interest rates later this year.
📊 Job gains | Why are headline numbers not translating to optimism?
Once again, job gains exceeded expectations. The 275,000 jobs added in February, even if revised downward in the coming months, indicate the labor market is growing at a sustainable pace. Despite strong growth, many workers and businesses are feeling pain in the labor market. The chart below might help explain why.
From February to April 2020, the economy lost nearly 22 million jobs. But the recovery started just as swiftly. Between May 2020 and December 2022, the economy added nearly 20 million jobs, averaging around 750,000 new jobs on a monthly basis.
In 2023, the economy added just over 3 million new jobs; and since January 2023, we've averaged 250,000 job gains per month. That whiplash, and a return to more "normal" job growth, could have many feeling like they're hitting turbulence rather than achieving a soft landing.
🏭 Industries | Job gains still concentrated
Once again, Government, Healthcare, and Leisure, and Hospitality accounted for nearly two-thirds of all jobs added. But there was broad growth across nearly all industries. While Education and Manufacturing both lost jobs in February, on a relative basis, the declines amounted to a near-zero percent change.
💼 Unemployment rate | Tougher market for job seekers
The unemployment rate rose to 3.9% in February, up from 3.7% in January - a two-year high. For businesses, it should be a bit easier to hire this year. But unfortunately, job seekers may have a harder time landing a new job.
This increase in the unemployment rate to two-year highs was driven by two factors, each with different implications for labor market. Starting with the bad news - there was an increase in the number of unemployed workers. But for the good news - this increase was nearly offset by new entrants to the labor force, which indicates that workers are confident in their ability to find a job.
💸 Wages and compensation | Still top of mind for businesses and employees
Wages growth moderated to 4.3% year-over-year in February, following a hotter-than-expected 4.5% in January.
For consumers, wage growth has remained above price growth for several months. But after a few years where wages weren't keeping up with inflation, it will take a while for to feel the pressure subsiding. Prices are still high, but the pain of inflation should start to diminish.
For businesses, we are settling into a period where wages are growing at around 4% annually, so compensation and merit planning budgets need to reflect this new reality to remain competitive.
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