U.S. unemployment edges down to 3.8 pct in February ahead of Fed rate hike

People have dinner at a restaurant in New York, the United States, Sept. 30, 2020. (Photo by Michael Nagle/Xinhua)

Job growth was widespread, led by gains in leisure and hospitality, professional and business services, health care, and construction, according to a report.

WASHINGTON, March 4 (Xinhua) -- U.S. employers added 678,000 jobs in February as the Omicron-fueled COVID-19 surge fades, with the unemployment rate slightly dropping to 3.8 percent, the U.S. Labor Department reported on Friday.

Job growth was widespread, led by gains in leisure and hospitality, professional and business services, health care, and construction, according to the report released by the department's Bureau of Labor Statistics (BLS).

"Surprisingly strong job gains in February but also surprisingly weak nominal wage gains," Jason Furman, former chairman of the White House Council of Economic Advisers, said on Twitter.

Average hourly earnings for all employees on private non-farm payrolls, at 31.58 U.S. dollars in February, were "little changed" over the month, after large increases in recent months, the BLS report showed.

Over the past 12 months, average hourly earnings have increased by 5.1 percent. Meanwhile, recent data from the Commerce Department showed that personal consumption expenditures (PCE), the U.S. Federal Reserve's preferred inflation gauge, rose 6.1 percent annually in January, the fastest annual pace in four decades.

Persistently high inflation and a tight job market have prompted the Federal Reserve to signal in January that it was ready to begin a series of interest rate hikes in March as it exited from the ultra-loose monetary policy enacted at the start of the pandemic.

Two days prior to the release of the monthly employment report, Federal Reserve Chairman Jerome Powell already reaffirmed the central bank's plan to raise interest rates in the upcoming policy meeting, noting that he is inclined to support a 25-basis-point rate hike.

"Inflation increased sharply last year and is now running well above our longer-run objective of 2 percent," Powell said at a hearing before the House Financial Services Committee.

Noting that the labor market is "extremely tight," the Fed chief said the improvements in labor market conditions have been "widespread.

U.S. Federal Reserve Chair Jerome Powell testifies at a confirmation hearing before the Senate Banking Committee in Washington, D.C., the United States, on Jan. 11, 2022. (Graeme Jennings/Pool via Xinhua)

"Labor demand is very strong, and while labor force participation has ticked up, labor supply remains subdued," Powell said, adding that employers are having difficulties filling job openings.

Diane Swonk, chief economist at major accounting firm Grant Thornton, noted in a blog Friday that Powell even referred to the labor market as "overheated" in his testimony on Capitol Hill this week.

"That begs the question of whether rate hikes that slow the pace of hiring will be enough to derail inflation; the Fed may also have to allow unemployment to rise to boost the supply of workers," Swonk said.

The latest BLS report showed that the labor force participation rate, at 62.3 percent in February, changed little over the month. It remains below its pre-pandemic level of 63.4 percent.

"Much of the loss in participation can be attributed to retirements, which accelerated with the pandemic and the aging of the baby boom into retirement years," Swonk noted.

"Another portion is due to workers who are now caring for others, including both children and older family members," she said, adding that women tend to carry that burden more often than men.

The latest BLS data also showed that the unemployment rate slightly dropped by 0.2 percentage points to 3.8 percent in February, after ticking up by 0.1 percentage point in January. This measure was down considerably from its recent high in April 2020 but remained above the pre-pandemic level of 3.5 percent.

The number of unemployed persons edged down to 6.3 million, after increasing to 6.5 million in previous month, the report showed, adding that the number remained above the pre-pandemic level of 5.7 million.

Among the unemployed, the number of permanent job losers changed little and stayed at 1.6 million in February. The number of persons on temporary layoff totaled 888,000 in February, also little changed over the month.

Earlier this week, payroll data company Automatic Data Processing (ADP) reported that private companies in the United States added 475,000 jobs in February. Employers added 509,000 jobs in January amid Omicron surge rather than slashing 301,000 workers as was initially reported.

In February, large firms hired 552,000 workers, medium-sized businesses added 18,000, while small companies cut 96,000 employees, the report showed, indicating an unbalanced recovery across different company sizes.

Nela Richardson, chief economist at ADP, noted that small companies lost ground as they continue to "struggle to keep pace with the wages and benefits needed to attract a limited pool of qualified workers."

Initial jobless claims in the United States last week fell by 18,000 to 215,000, recording its second consecutive weekly decline after ticking up in the previous week amid the Omicron surge, the U.S. Labor Department reported on Thursday.