US hiring strong in February but wage gains flat

The US economy pumped out a strong 295,000 new jobs in February despite some severe weather and mounting layoffs in the oil industry, but workers' wage gains remained limited.

The better-than-expected jobs number sent the unemployment rate down to 5.5 percent, from 5.7 percent previously, to the lowest level since May 2008, the Labor Department reported Friday.

Hiring was strong in restaurants, health care and administrative services, and steady in construction and retail trade, despite some severe winter storms that locked down local economies in some regions including the northeast.

The oil and gas industry, just beginning to cut back in the face of the crash of crude prices, shed about 8,500 jobs.

February's numbers brought the winter three-month average to 288,000 net new positions, and the 12-month total to 3.3 million jobs, enviable numbers compared to other leading industrial economies where hiring and economic growth remain flat.

"The February performance is especially impressive given that an unusually severe winter might have been expected to dampen job growth, especially in sectors like construction and restaurants," said Dean Baker of the Center for Economic Policy Research.

Analysts said that should push the Federal Reserve ahead towards a long-flagged interest rate increase somewhere around midyear, after keeping the benchmark federal funds rate at zero since the economic crisis of 2008.

US bond yields jumped and the dollar rose to a new 11-year high against the euro at $1.0852 per euro compared with $1.1028 late Thursday.

The dollar surged to 121.28 yen, just below its high point for the past year.

Likewise, US stocks slipped on expectations of rising rates: the S&P 500 lost 1.0 percent to 2,080.80.

"Clearly the case for the Federal Reserve to raise its rates in June has improved with the employment data," said Hugh Johnson of Hugh Johnson Advisors.

- Wage gains still poor -

Even so, there were weak spots in the data that could keep the Fed on pause for a more clear trend when it holds its next policy meeting on March 17-18.

The fall in the unemployment rate to 5.5 percent, based on the often volatile household employment survey, reflected as much a surge in the number of dropouts from the labor force as it did new jobs creation.

The overall rate of participation in the workforce -- closely eyed for signs of a sustained pickup in hiring -- was barely changed at 62.8 percent, still low compared to the pre-crisis level above 66 percent.

The pace of wage increases -- which should rise in a tightening labor market -- was also barely higher. At $24.78, average hourly wages were up three cents from January, a bare 0.1 percent.

Baker says the data shows wage increases are slowing rather than picking up pace as expected with the strong hiring. Over the last three months wages have risen at a 1.8 percent annual pace, compared to 2.0 percent previously.

"There still remains a lot more slack in the labor market -- part-timers, folks who gave up looking," said Justin Wolfers, an economist at the Peterson Institute for International Economics.

"We're learning that the recovery could have a lot further to run without igniting inflation."

But Wolfers added that the flat participation rate also shows that the workforce is absorbing enough people to match the growth in the population -- a sign of strength in the economy.

Still, most analysts said the data is strong enough to move the Fed forward.

"It may still take some time for wage pressures to surface as historically wage inflation has lagged job growth," said Deutsche Bank, which predicts a rate increase in June.