Economic Report: Economy likely added 440,000 jobs in February – but labor shortage persists
The deep drop in omicron cases in February gave businesses the green light to hire and more people who got sick returned to work. So Wall Street is expecting a sturdy increase in U.S. employment.
Here is what to watch in the Labor Department’s jobs report on Friday.
Economists polled by the Wall Street Journal predict the U.S. added 440,000 new jobs in February. That would be similar to a 467,000 increase in January.
Leisure and hospitality businesses such as hotels and restaurants probably added the most new jobs. The receding pandemic is expected to spur people to spend more on services such as in-person shopping, travel and dining out.
Last year, the U.S. created an average of 555,000 new jobs a month.
The official jobless rate is seen slipping to 3.9% from 4%, matching a pandemic low.
Unemployment had fallen to a 50-year low of 3.5% in early 2020 shortly before the pandemic, but the labor market is far different now.
The number of people working still hasn’t returned to precrisis levels, for one thing, and many may not return to the labor market anytime soon, if at all.
The result: The biggest labor shortage is modern times.
Higher worker pay
The labor shortage has given employees the most leverage over employers in decades.
Millions of people have switched jobs and gotten higher pay. And companies worried about losing more workers are increasing wages and benefits or offering more money to lure new employees.
Hourly wages are forecast to climb a sharp 0.5% in February. Such an increase would push the rise in pay over the past year to 5.8%, one of the biggest increases in decades.
“Labor shortages remain and wage gains are showing no signs of slowing,” said Joel Naroff of Naroff Economic Advisors.
Unfortunately, households aren’t really getting ahead. They need to extra money to cope with the highest inflation since 1982. The cost of living surged by 7.5% in the 12 months ended in January.
Size of labor force
The U.S. economic recovery eventually could slow or even stall unless a lot more people enter the labor force in the next year or two.
The share of able-bodied people over 16 either working or looking for work stood at 62.2% in January — well below the precrisis peak of 63.4%. The so-called participation rate is expected to stay the same in February.
It doesn’t sound like much, but the gap between the participation rate then and now reflects a shortfall of 3.2 million workers. By contrast, businesses have nearly 11 million open jobs.
Even now companies can’t produce enough goods and services to keep up with demand. So something has to give.
Caveats and the Fed …
Economists warn against reading too much into the U.S. employment report or taking Wall Street’s
forecast at face value.
The pandemic has made it harder for government statisticians to adjust employment gains for the normal seasonal swings in hiring and firing. As a result, the report has often sharply over- or underestimated hiring gains each month.
Whatever the case, one thing is clear: The February employment report won’t sway the Federal Reserve one way or another.
To combat high inflation, the central bank plans to raise interest rates in March for the first time in four years in what’s likely to be the first in a series of rate hikes.