Labor Market Finds Groove
Updated from 10:40 a.m. EST
The labor market switched into overdrive last month, propelled by healthy growth in business services and construction employment, while hourly wages were unchanged.
The U.S. economy added 262,000 jobs in February, while the unemployment rate rose to 5.4%. The payroll number was well above the consensus of economists, who had expected 225,000 new jobs in February.
"I believe this 'Goldilocks' report gives the
Fed
a perfect perscription to take a measured approach to raising interest rates," said Stuart Hoffman, chief economist at PNC Financial Group.
January's payroll growth was revised down to 132,000 from the previously reported 146,000, but the decrease was offset by an upward revision for December. The unemployment rate was 5.2% in January.
Average hourly earnings were flat in February.
Eric Goodstadt, an executive with the recruiting firm MRI International, said high-octane payroll gains should continue into the spring.
"All indicators in the recruiting field show very strong job growth for March and April," Goodstadt said. "With the implementation of Sarbanes Oxley, we continue to have a candidate shortage due to the lack of skill sets of job seekers. We are finding it difficult to fill many roles."
The blowout employment report pushed blue-chip stocks up to three-and-a-half year highs. The
Dow
gained 108 points to 10,941, the
S&P 500
added 12 points to 1222, while the
Nasdaq
rose 12 points to 2071. Bond prices also moved up, as the absence of wage pressure convinced traders that the
Federal Reserve
probably won't alter its schedule of measured rate hikes when it meets March 22.
The big contributors to February's payroll growth were service industries, which added 207,000 jobs. Construction, which was impaired by bad weather in January, added 30,000 jobs last month, as did the retail sector.
In manufacturing, payrolls grew by 20,000, mostly reflecting workers returning to shuttered assembly plants.
Friday's report follows an upward revision in the government's estimate of fourth-quarter productivity, to 2.1% from 0.8%. That number also bolstered inflation doves, who have nervously noted Alan Greenspan's recent preoccupation with worker output when sizing up threats to balanced growth.
Even with Thursday's revision, however, productivity is down from the 4%-plus growth rate of the last three years.
"The payroll numbers released are very encouraging, but I question the sustainability," said Rich Yamarone, director of economic research at Argus. "How can we continue to add 260,000 jobs per month with productivity on the decline? One stellar month of payroll numbers does not a trend make."
Economists currently expect the U.S. economy to grow by a little over 3% in 2005, although a falling dollar and rising oil -- two other Greenspan bugaboos -- could crimp the outlook.
"I can't see corporate America going on a hiring spree with oil trading over $55 and the rising cost of health care," said Yamarone.