Economists: Strong Job Gains Support Rate Hike

Economists from NAFCU and the Mortgage Bankers Association said Friday’s strong jobs report gave the Fed more reason to stay on its path to raise interest rates despite Russia’s invasion of Ukraine.

NAFCU Chief Economist Curt Long said Fed’s Open Market Committee (FOMC) is likely to raise rates at its next meeting, March 15-16.

“The February jobs report eclipsed expectations as the impact of the Omicron variant fades,” Long said. “There is plenty of uncertainty due to the war in Ukraine, but the path is clear for the FOMC to initiate liftoff later this month.”

The report Friday from the U.S. Bureau of Labor Statistics (BLS) showed the nation had a seasonally adjusted 150.4 million non-farm jobs in February, a gain of 678,000 jobs from January to February.

The unemployment rate was 3.8% in February, down from 4% in January after seasonal adjustments and down from 6.2% in February 2021. However, it was still higher than the 3.5% pre-pandemic rate of February 2020.

And total nonfarm jobs in February were still down by 2.1 million, or 1.4%, from its pre-pandemic level in February 2020.

MBA chief economist Mike Fratantoni said the economy is on track within three months to recover all the jobs lost since COVID-19 was declared a pandemic in March 2020.

“Job gains were strong again in February, with multiple aspects of the report highlighting a tight labor market,” Fratantoni said. “This report is likely to reaffirm recent comments from Federal Reserve officials indicating that they still plan to increase rates at their upcoming March meeting, despite the market volatility stemming from the situation in Ukraine.”

BLS said job growth was widespread over the month, led by gains in leisure and hospitality, professional and business services, health care, and construction.

Long said labor force participation rate improved from the prior month, as 600,000 fewer workers reported being out of the labor force due to the pandemic. Average hourly wage growth slowed in February, but he said that is likely because man of the new hires were in low-wage sectors.

CUNA Senior Economist Dawit Kebede said February’s job gains were stronger than expected, building on “strong performance from previous months.”

“Labor force participation increased a little but remains lower than its pre-pandemic level, which makes it difficult for businesses that are in need of workers,” he said.

Federal Reserve Chair Jerome Powell has signaled he will recommend a quarter basis point interest rate increase to control rising prices at this month’s meeting. Kebede said the February jobs report provides the Fed “strong support for such a measure.”

Fratantoni said he expects the unemployment rate will fall below its 3.5% pre-pandemic level if low initial unemployment claims and low participation rates persist.

“Average hourly earnings were little changed for the month, but were up 5.1% over the past year, “a strong pace, but still short of the price gains shown in the Consumer Price Index (CPI),” Fratantoni said.

Meanwhile, Fratantoni said would-be home buyers will continue to find choices more scarce than usual.

“Construction jobs were up 60,000, with gains in the categories for contractors. Permits for new homes have increased, and now we see hiring picking up,” he said. “However, supply chain constraints continue to pose a challenge for builders meeting the strong demand for new homes.”