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US Employment Surges in February, Unemployment Rate Falls to 6 ½ Year Low

H.S. Borji
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US employment rose faster than forecast in February as the unemployment rate fell to a more than six-and-a-half year low, adding further evidence the labour market was heading toward full employment and raising speculation the Federal Reserve may be open to a June rate adjustment.

Employers added 295,000 nonfarm payrolls last month, following a downwardly revised gain of 239,000 in January, the Labor Department reported today in Washington. A median estimate of economists called for a January gain of 240,000.

The economy has added an average of 288,000 jobs per month over the last three months, official data showed. Employment growth averaged 266,000 per month over the last 12 months.

Private nonfarm payrolls rose by 288,000 in February, compared to expectations for 229,000. Earlier this week the ADP payrolls processor said private payrolls increased by 212,000 last month.

February’s gains were led by professional and business services, which saw payrolls rise by 51,000. The construction sector added 29,000 jobs last month, while employment in health care increased by 24,000. Employment in retail trade continued to edge higher, rising 32,000, while manufacturing employment increased by 8,000.

Employment in mining decreased by 9,000 in February. Employment in other major industries such as wholesale trade, information, financial activities and government showed little change from the previous month, official data showed.

The unemployment rate declined 0.2 percentage point to 5.5 percent, a more than six-and-a-half year low. A median estimate of economists called for a decline to 5.6 percent. The bigger than expected drop in the unemployment rate was partly attributed to declining participation in the labour force. The participation rate – the percentage of workers employed or actively searching for work – declined to 62.8 percent from 62.9 percent.

The bigger than expected rise in employment had no favourable impact on wages, the Labor Department said. Average hourly earnings rose just 0.1 percent or 3 cents to $24.78. Compared to February 2013, average hourly earnings rose 2 percent. Wages had appreciated by 0.5 percent or 12 cents in January.

A stronger labour market could encourage the Federal Reserve to begin normalizing interest rates sooner rather than later. Fed Chair Janet Yellen announced last week the central bank would hold off on raising interest rates in the next few Federal Open Market Committee policy meetings, suggesting policymakers have adopted a wait-and-see approach in line with the economic data. The markets had previously priced in a June rate increase.

The FOMC’s next meetings are scheduled for March 17-18 and will be accompanied by a summary of economic projections. Many economists still believe policymakers are open to a June interest rate increase and expect the Fed to drop its pledge for “patience” in its next rate statement.

The Federal Reserve has held its benchmark interest rate near zero since December 2008.

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