The US labor market appears to be doing just swell — but the boom times are likely in the rearview mirror.
The economy added 275,000 jobs in February, the Bureau of Labor Statistics reported Friday, a stronger-than-expected gain that shows the foundation for economic growth remains quite sturdy.
“The economy remains strong, held up by a robust labor market,” wrote Christopher Rupkey, chief economist with FwdBonds, in a note Friday. “The labor market remains rock solid.”
Economists had expected a net gain of 200,000 jobs in February and for the unemployment rate to be unchanged at 3.7%, according to FactSet estimates.
Instead, the unemployment rate climbed higher, to 3.9%, in February.
“I don’t think that’s a bug, I think that’s a feature,” Robert Frick, corporate economist at Navy Federal Credit Union, told CNN in an interview. “More people are entering the workforce.”
February marked the 38th consecutive month of job growth (the fifth-longest period of employment expansion on record), and the 25th consecutive month that the nation’s jobless rate has been below 4%, the longest stretch in more than 50 years, BLS data shows.
Still, Friday’s jobs report also showed that the whopping gains initially recorded for January and December were revised down by a combined 167,000 jobs. January’s job gains now sit at an estimated 229,000 (down from the blowout 353,000); and December’s job growth at 290,000 (down from 333,000).
Economists previously told CNN that the robust job gains in January and December were likely overstated due to seasonal adjustments and holiday hiring trends.
The labor force participation rate held steady at 62.5% for the third consecutive month, and the average workweek ticked back up to 34.3, easing concerns that employers may be cutting hours due to waning demand.
Where the job growth is
Job growth remained strong in health care, leisure and hospitality and government — a trio of sectors that has accounted for the lion’s share of the gains during the past year.
And that trajectory should continue.
“Those three sectors have room to run,” Diane Swonk, chief economist at KPMG US, told CNN in an interview.
Health care will need more workers because a larger share of Americans are getting older; state and local governments’ coffers, by and large, are overflowing; and retiring Baby Boomers flush with cash are spending that on vacations.
To that lattermost point: Air passenger travel has been up as compared to 2023 for all but two days this year, according to Transportation Security Administration data.
However, having job growth concentrated in three sectors carries some risks, Swonk said.
“That could make [the economy] more susceptible to external shocks,” she said.
February’s report did seem to indicate that there are employment gains in a wider swath of industries. In February, that included construction (up 23,000 jobs); transportation and warehousing (up 19,700 jobs); and retail (up 18,700 jobs).
“It was a good report because we’re still filling in these needed jobs in health care and education, but hiring is broadening out, which is what really needs to happen,” Frick said. “It looks like we will make the transition from a Covid recovery labor market to a normal expansionary labor market later this year.”
Where workers are still needed
The pandemic effects still loom large for businesses such as DreamOn Group, a San Antonio, Texas-based developer, general contractor and property management firm.
When Julissa Carielo started the company 18 years ago as Texas Premier Building Contractor Inc., she did so with $75,000 pulled from her 401(k) and two employees. By 2019, the company had grown into a multimillion-dollar firm with 65 employees.
However, those ranks shrank dramatically during the past four years. DreamOn’s current workforce counts 35 people.
“The Baby Boomers retired; we had way too many retirement parties going on and not enough new folks coming in,” she said. “And we are hiring every single week. Every week, we’re looking for workers, and we cannot find them.”
DreamOn Group is one of many businesses affected by worker shortages in the skilled trades.
DreamOn Group previously had an in-house crew to tackle projects such as demolition, concrete work, interior finishes, drywall and painting. Now, the company is leaning more on subcontractors to complete those tasks.
“That’s how we thought we can try to adjust, but I miss the days where we could send our own crew, because it provides a lot more flexibility,” she said.
What this all means for the Fed
The US labor market has slowly come back more into balance after being thrown completely out of whack by the pandemic.
New labor turnover data released earlier this week showed that the level of job openings, hiring activity, quits and layoffs all moved downward in January from December, according to the BLS’ Job Openings and Labor Turnover Survey (JOLTS).
Still, the 8.86 million job openings — a closely watched measure of labor demand — remains well above pre-pandemic averages (the 7 million right before the pandemic and the average of 4.5 million jobs between 2001 and 2019), highlighting the continued need among employers.
The Federal Reserve wants to see more slack in the labor market to help in its?fight to bring down inflation. When there’s an imbalance in worker supply and demand, that could cause wages to rise and, in turn, prompt companies to raise prices.
“This is an economy that’s still generating a lot of paychecks and a lot of spending power,” Swonk said.
Friday’s jobs report showed that wage growth is indeed slowing.
Average hourly earnings inched up by 0.1% from December, slower than the 0.3% growth that economists expected. On an annual basis, wage growth slowed to 4.3%. Central bankers are likely looking for annual wage growth to be in the 3.5% realm, Gus Faucher, PNC Financial Services’ chief economist, told CNN.
“Fed officials will likely find some comfort in the more benign wage reading and the apparent loosening in labor market conditions, but the still strong pace of job creation will reinforce recent Fed messaging that there is no rush to begin cutting interest rates,” Lydia Boussour, EY senior economist, wrote Friday. Boussour said she expects that any Fed rate cuts would likely start in June.
February’s jobs report points to a resilient economy and does not carry worrying implications for inflation, Treasury Secretary Janet Yellen told CNN’s Kate Bolduan in an interview Friday.
“Americans are getting ahead, they’re getting solid wage increases that exceed inflation, but there is really no evidence of inflationary pressure coming from the labor market,” Yellen said.
The Fed next week will get a good look at the progress of its inflation fight with the release of the critical Consumer Price Index, due out Tuesday, as well as the Producer Price Index on Thursday.
CNN’s Bryan Mena contributed to this report.
