3 Economists React To February Jobs Report: 50-Basis-Point Interest Rate Hike 'Still On The Table' For Fed

U.S. payrolls soared by 311,000 in February, maintaining a strong pace despite recent interest rate hikes aimed at dampening demand. But the unemployment rate ticked up slightly from January’s 3.4% to 3.6%, above economist estimates of 3.5%.

The Federal Reserve's efforts to curb inflation by slowing down the economy seemed to have little effect, as hiring remained robust and inflationary pressures resurfaced.

Hourly earnings rose by 0.2% in February, while over the past year, they increased by 4.6%. The labor force participation rate also edged up to 62.5% from January's 62.4%.

The Economist Reaction: Economists had been anticipating the release of the February payroll numbers as a litmus test for the economy's resilience.

“Perhaps the best news from this report was the easing of wage pressures to +4.6% year-over-year,” Comerica Wealth Management Chief Investment Officer John Lynch said in a statement.

“Since the Fed has been most focused on terms like 'super core' and 'sticky' price pressures, a drop in the largest costs for businesses is a welcome development. Nonetheless, 50-basis points is still on the table for the March policy meeting, given recent economic strength and dependent on next week’s CPI report.”

If the data had shown signs of a slowdown, the Fed may have paused its plan to raise interest rates. Fed Chair Jerome Powell suggested earlier this week that if economic activity shows further signs of heating up, the central bank may increase interest rates more aggressively at its March policy meeting.

The leisure and hospitality sector led job gains in February, with an increase of 105,000 positions; Jeffrey Roach, chief economist at LPL Financial sees this continuing for some time.

“The demand for labor in the services sectors will likely be strong for the foreseeable future as consumers recalibrate spending habits to pre-pandemic norms," Roach said in a statement. "The tight labor market could push the Fed to hike rates by 0.50% at the next meeting since services inflation ex housing is not decelerating as fast as policymakers desire."

Meanwhile, information-related jobs decreased by 25,000, and transportation and warehousing lost 22,000 jobs.

Though, some economists are convinced that the BLS’ data is accurate, given global events that have taken place over the last couple of years.

“I don’t think the BLS’s models and assumptions of labor force size are accurate in a post-Covid[-19] world,” Michael Lee said in a statement. “I’m not suggesting any funny business, I just think somewhere in their model is an error.”

Lee said that pre-Covid, any error was consistent over time, making data comparable and trend lines over time reliable.

“I don’t think that’s the case now,” he said.

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