Image: Unemployment Drops to 4-Year Low of 7.7% as More People Stop Looking for Work

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Unemployment Drops to 4-Year Low of 7.7% as More People Stop Looking for Work

Friday, 08 Mar 2013 08:34 AM

 

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Employers stepped up hiring in February, adding a greater-than-expected 236,000 workers to their payrolls and helping to push the jobless rate to a four year-low in a bright signal on the economy's health.

The data from the Labor Department on Friday showed the economy gaining traction despite the blow from higher taxes and deep government spending cuts.

"This was a strong number and one of those rare cases where we were firing on all cylinders," said Jacob Oubina, a senior U.S. economist at RBC Capital Markets in New York.

The jobless rate fell to 7.7 percent, the lowest since December 2008, from 7.9 percent in January. The decline reflected both gains in employment and people leaving the labor force.

The upbeat report, which showed broad-based job gains, was another sign of the economy's fundamental health, and it added fuel to a rally in U.S. stock markets that had already propelled the Dow Jones Industrial Average to record highs.

At the same time, the dollar strengthened and the yield on the benchmark 10-year U.S. Treasury note rose sharply.

Economists had expected a gain of just 160,000 jobs. Nonetheless, the data was not so strong as to deter the Federal Reserve in its efforts to foster even faster economic growth by buying bonds, a policy known as quantitative easing.

"We're in a sweet spot of sorts with the data showing a more robust recovery, which supports stocks and the dollar, yet not quite strong enough to declare an end to quantitative easing," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Although December and January's employment data was revised to show 15,000 fewer jobs added than previously reported, details of the report were solid, with construction adding the most jobs since March 2007 and increased hours for all workers.

Job gains in February were well above the 195,000 monthly average for the three months through January.

FED STILL IN PLAY

Despite the pickup in hiring, the pace of gains is still below the roughly 250,000 jobs per month that economists say is needed on a sustained basis to significantly reduce unemployment.

With fiscal policy tightening, Fed officials are likely to remain leery of withdrawing their support for the economy too soon. A 2 percent payroll tax cut ended and tax rates went up for wealthy Americans on January 1. In addition, $85 billion in federal budget cuts that could slice as much as 0.6 percentage point from growth this year started on March 1.

The central bank is buying $85 billion in bonds per month and has said it would keep up asset purchases until it sees a substantial improvement in the labor market outlook.

Since the 2007-09 recession ended, the economy has struggled to grow above a 2 percent annual pace. In the fourth quarter, output barely expanded.

In February, the construction employment increased by 48,000 jobs after rising by 25,000 in January.

A decisive turnaround in the housing market and rebuilding on the East Coast after the destruction by Superstorm Sandy in late October is boosting jobs at construction sites.

Manufacturers stepped up hiring in February, although the pace was still well below early last year because of lackluster domestic demand and cooling growth overseas. Factory jobs increased 14,000 last month after rising 12,000 in January.

Retail employment increased 23,700 jobs, rising for an eighth straight month, and defying a recent slowdown in sales.

Healthcare and social assistance saw another month of solid job gains. The same was the case for leisure and hospitality.

Government continued to shed jobs, with payrolls dropping 10,000 last month after falling 21,000 in January.

The sustained steady job gains are lending some stability to wages. Average hourly earnings rose four cents last month. That was the fourth straight month of gains in hourly earnings.

They increased 2.1 percent in the 12 months through February after a similar advance in January.

The length of the average workweek increased to 34.5 hours from 34.4 hours in January.

© 2014 Thomson/Reuters. All rights reserved.

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