Job Growth Beats Expectations in February

Nonfarm payrolls climbed by a seasonally adjusted 235,000 in February, stronger than the 200,000 jobs predicted in a Bloomberg poll of economists. The number of jobs added in December and January was also revised upward by 9,000, bringing the average monthly gain in job growth over the past three months to 209,000 and the average over the past year to 196,000. Healthy gains in employment have, in turn, enabled the unemployment rate to fall. By February, the national unemployment rate had fallen to 4.7%, a level that's considered at or near full employment (where — if all parts of the country were sharing equally in the gains — everyone who wanted a job could find one).

Construction was one of the strongest sectors of the job market in February, gaining 58,000 jobs after seasonal adjustment. At least part of the reason behind the sector 's strength, however, was unusually good weather in February that allowed construction to continue in areas of the country where weather might have typically slowed or shut it down. Other strong sectors included education and health services (up 62,000 jobs), professional and business services (up 37,000 jobs), and leisure and hospitality (up 26,000 jobs). Manufacturing also showed life in February with a seasonally adjusted gain of 28,000 jobs, even though motor vehicle manufacturing lost 3,500 jobs).

The robust February jobs report combined with a fervent stock market and growing consumer spending strongly increases the likelihood of a rate hike when the Federal Reserve Board next meets on March 14-15. After leaving rates unchanged at near zero since the end of 2008, the Federal Reserve has increased rates twice over the past few years: by a quarter point in December 2015 and another quarter point in December 2016. An additional quarter point move is now expected this month, potentially followed by two or three additional rate hikes over the remainder of this year.

The Federal Reserve is making an effort to balance its desire for continued growth with the need to prevent excesses that could overheat the economy and push up inflation over the next few years. The Federal Reserve is concerned, for example, about the potential stimulatory effects of the administration's plans to cut corporate taxes and regulations as well as its pledge to spend $1 trillion on infrastructure improvements. It is therefore expected to act proactively over this year and next to bring the Federal Funds Rate up to a more neutral, less stimulative, position. Here's hoping the Fed is successful in its balancing act.