BANK MAYHEM IS ON THE FED´S RADAR ON JOBS FRIDAY / THE WALL STREET JOURNAL

Bank Mayhem Is on Fed’s Radar on Jobs Friday

Jobs report is mostly good news for investors hoping the Fed will slow down, but SVB Financial’s problems are top of mind

By Justin Lahart

The labor-force participation rate rose to 62.5% last month, the highest level since March 2020. / PHOTO: RACHEL WOOLF FOR THE WALL STREET JOURNAL

There is no such thing as a perfect jobs report, but February’s was pretty darn good.

The Labor Department reported on Friday that the U.S. economy added 311,000 jobs last month, more than the 225,000 that economists expected. 

January’s blowout jobs number was revised lower, but only marginally—it now shows a payroll gain of 504,000 as opposed to 517,000.

Meanwhile, the unemployment rate skipped to 3.6% from 3.4%, but this was for the cheering reason that more people joined the labor force, and were looking for work. 

The labor-force participation rate—the share of the working-age population that is employed or actively seeking employment—rose to 62.5% from 62.4%, marking its highest level since March 2020.

Reinforcing the notion that rising participation might be feeding a tight labor market a tiny bit of slack, average hourly earnings rose by just 0.2% from a month earlier compared with economists’ expectations of 0.4%.

It isn’t hard to construct a Goldilocks narrative around the report in which the economy is strong, job growth is robust but, because more people are entering the job hunt, maybe Federal Reserve policy makers won’t be so worried about wage inflation, compelling them to ratchet up their rate increases.

And with futures markets on Friday putting a higher chance of the central bank’s policy-setting committee raising its range on rates at its meeting later this month by a quarter point, as opposed to a half point, than on Thursday, that is one way to interpret the job numbers.

But take a little care here.

It is great news that labor-force participation has climbed, an indication, perhaps, that the continued easing of the pandemic’s grip on the economy is setting more people on the job hunt. 

Friday’s report showed that 1.17 million people were absent from work because of illness, injury or other medical problems, down from 1.57 million in February last year and only a bit higher than February 2019’s 1.11 million.

That said, even if the number of people coming into the labor force is picking up, the recent pace of job gains is still too high to prevent the labor market from getting even tighter over time. 

The Fed won’t be convinced that it can ease up on the brakes.

The lower-than-expected increase in wages might not provide the Fed with much cause for solace, either. 

The major industry group with the biggest employment gains last month was leisure and hospitality, which added 105,000 jobs. 

Leisure and hospitality is also the lowest-paying industry group, so its outsize employment gains probably weighed on average hourly earnings.

Moreover, the bigger reason credit-market participants on Friday were lowering their Fed rate expectations was probably concerns that the trouble at SVB Financial could spread through the financial sector, and that the Fed will be wary of raising rates until it is sure that the trouble has been contained. 

If all the Fed had to worry about on Friday was the job market, that would have been a better thing.