February jobs report preview: Payrolls expected to rise as Omicron cases dip

March 4, 2022 3oliver

The U.S. economy likely added jobs back for a fourteenth straight month in February, with job growth continuing even in the already-tight labor market as new Omicron cases from earlier this year came down.

The Labor Department is set to release its February jobs report Friday at 8:30 a.m. ET. Here are the main metrics expected from the print, compared to consensus estimates compiled by Bloomberg:

Non-farm payrolls: +423,000 expected, +467,000 in January
Unemployment rate: 3.9% expected, 4.0% in January
Average hourly earnings, month-over-month: 0.5% expected, 0.7% in January
Average hourly earnings, year-over-year: 5.8% expected, 5.7% in January

January’s jobs report presented a significant upside surprise to investors, with more than 450,000 payrolls returning versus the 125,000 expected at the time. Job gains for December were also upwardly revised to total more than half a million.

“As the labor market grows tighter, we should expect some slowing in jobs growth,” Alex Pelle, Mizuho Securities U.S. economist, wrote in a note. “A greater proportion of hires will come from workers moving between firms than moving from unemployment or from outside the labor force.”

The data for the past several months signaled that underlying momentum in the labor market remained strong even as a record surge in COVID-19 cases at the beginning of the year temporarily cooled demand for workers, especially in the high-contact services sector. February’s report is expected to reflect ongoing strength with broad-based gains across industries, especially since Omicron cases retreated further in the weeks since the last jobs report.

“Falling COVID case counts should provide further forward momentum against a backdrop where benchmark revisions painted a picture of a more durable rate of hiring last year and at the start of 2022 than was previously estimated,” Sam Bullard, Wells Fargo senior economist, wrote in a note. “The labor market remains tight, and that should continue to reflect in salaries and wages. Pay pressures are still building across most industries.”

Average hourly wages are expected to jump 5.8% on a year-over-year basis, representing the largest rise since May 2020, when layoffs among those at the lower-end of the pay scale during the pandemic skewed the wage growth toward higher earners.

Now, wage gains have been broad-based and persistent, even as employees across industries return to work. This has, in turn, contributed to the overall rise in inflation seen across the U.S. economy, though wages have not kept pace with the rise in consumer price inflation. The Consumer Price Index last rose 7.5% in January over last year — the biggest jump in 40 years.

Taken together, evidence of much stickier-than-expected inflation and a consistently improving labor market have helped make the case for the Federal Reserve to begin raising interest rates and otherwise remove its pandemic-era support mechanisms for the U.S. economy. Federal Reserve Chair Jerome Powell offered an upbeat assessment of the U.S. economic backdrop during his semi-annual address before Congress earlier this week.

“The labor market is extremely tight … improvements in labor market conditions have been widespread, including for workers at the lower end of the wage distribution as well as for African Americans and Hispanics,” Powell said during his testimony before the House Financial Services Committee on Wednesday.

“Labor demand is very strong, and while labor force participation has ticked up, labor supply remains subdued,” Powell said. “As a result, employers are having difficulties filling job openings, an unprecedented number of workers are quitting to take new jobs, and wages are rising at their fastest pace in many years.”

Most Federal Open Market Committee members would agree the current labor situation is consistent with maximum employment, Powell added. And as a result, he said with unusual clarity that he would support a 25-basis point interest-rate hike after the Fed’s next meeting concludes later this month, bringing the benchmark rate slightly above its current near-zero level.

The Federal Open Market Committee is next set to convene March 15 and 16.

This post will be updated with the results of the Labor Department’s February jobs report Friday morning at 8:30 a.m. ET. Check back for updates.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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