U.S. job growth accelerated sharply February despite the icy weather gripping much of the nation, easing fears of an abrupt economic slowdown and keeping the Federal Reserve on track to continue reducing its monetary stimulus.
Employers added 175,000 jobs to their payrolls last month after creating 129,000 new positions in January, the Labor Department said Friday. The unemployment rate, however, rose to 6.7 percent from a five-year low of 6.6 percent, as Americans flooded into the labor market searching for work. "This bodes well for the economy since there were massive headwinds," said Adam Sarhan, chief executive at Sarhan Capital in New York. "This report plays perfectly into the Fed's script of tapering."
U.S. stocks opened higher on the data, while government bonds sold off, pushing yields higher. The dollar hit a six-week high against the yen. Interest rate futures showed traders ramped up bets on the Federal Reserve, hiking rates a bit sooner than previously thought. They now point to a 53 percent probability rate hike June 2015.
Unfortunately, unusually cold and snowy winter weather has disrupted economic activity in much of the United States for months. With snow and ice covering densely populated areas during the week employers were surveyed for February payrolls, Wall Street braced for a much weaker report. Economists forecasted nonfarm payrolls rising by only 149,000 jobs. In addition to the stronger-than-expected February reading, the figures for December and January were revised up to show 25,000 more jobs created during those months than previously reported.
The weather, however, did have an impact last month. It cut into the length of the average workweek, which hit its lowest level since January 2011. This led to a drop in the measure of total work effort, despite the rise in payrolls. Still, economists expect a reversal once weather improves. The smaller survey of households from which the unemployment rate is derived showed 6.9 million people with jobs reported they were working part-time because of the weather. That is the highest reading for February since the series started in 1978. It also showed 601,000 people could not get to work because of the weather, the highest level for February since 2010. Nonfarm payrolls averaged about 205,000 new jobs per month in the first 11 months of 2013, but that figure dropped to just 129,000 for December, January, and February.
FED TAPER TO CONTINUE
Fed officials, from Chair Janet Yellen on down, view the recent weakness in economy as largely weather-related and temporary, and have said the economic outlook would have to change significantly for the central bank to set aside plans to wind down its bond-buying stimulus. It already reduced its monthly bond purchases by $10 billion at each of its last two meetings, and economists expect a similar reduction when officials next meet March 18-19. "Fed tapering will likely continue full steam ahead," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee.
But the weather is not the only factor behind the lull in activity. Businesses are working through a huge pile of unsold goods accumulated the second half of 2013, which means they have no incentive to place new orders with manufacturers. In addition, the expiration of long-term unemployment benefits for more than one million Americans December as well as cuts to food stamps are hurting spending. These factors are temporary, though.
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was steady at 63 percent February. Job gains last month were fairly broad-based, with private sector payrolls rising 162,000 and government adding 13,000 jobs. Manufacturing saw a seventh straight month of advancements in employment, matching the 6,000 jobs acquired in January. Construction payrolls, which surprised January by logging hefty gains, increased by 15,000 last month. Average hourly earnings rose nine cents February, the most since June last year, and another bullish economic sign.
