Payrolls and wages blow past expectations, flying in the face of Fed rate hikes

Despite the Federal Reserve slowing the labor market and tackling inflation, job growth was better than expected.

The Labor Department reported Friday that nonfarm payrolls increased by 263,000 in February. An increase of 200,000 on the payrolls number was what the economists had been looking for.

The October gain was revised upward to 284,000. A broader measure of unemployment that includes discouraged workers and those holding part-time jobs fell to 6.7%.

The Fed has been raising interest rates steadily this year in order to bring down inflation, which is near a 40-year high. The Fed's overnight borrowing rate has been raised to a target range of 3%- 4%.

In another blow to the Fed's anti-inflation efforts, average hourly earnings rose 0.6% for the month. Wages were up 5.1% on a year over year basis, well above the 4.6% expectation

The futures fell more than 400 points as the hot jobs data made the Fed more aggressive.

Seema Shah, chief global strategist at Principal Asset Management, said that 263,000 jobs were added even after policy rates were raised. There is pressure on the Fed to raise policy rates because of the hot labor market.

There were 88,000 new jobs in leisure andhospitality.

Health care, government, and other services, which include personal and laundry services, showed a total gain of 24,000. The Labor Department said there was a rise of 23,000 in social assistance, which brings it back to where it was before the Covid epidemic.

Construction, information, and manufacturing all gained jobs.

Heading into the busy holiday shopping season, retail establishments lost 30,000 positions. Warehousing and transportation fell by 15,000.

The Fed has raised rates six times this year and four times in a row.

Job gains had been running strong this year even though they had been a bit lower than in the future. payrolls have gone up an average of 392,000 on a monthly basis. 1.7 positions are open for every available worker because of the high demand for labor.

The job gains are far in excess of the pace needed to accommodate population growth over time, according to the Fed Chairman.

Strong wage growth is beneficial. Wage growth needs to be in line with inflation for it to be sustainable.

The Fed is expected to raise its interest rate by a small amount. According to current market pricing and statements from several central bank officials, there will be a few more increases in 2023 before the central bank can pause to see how its policies are affecting the economy.