U.S. employers hired workers at the fastest pace in nine months in February and the jobless rate slipped to a nearly two-year low of 8.9 percent, showing the economy is finally kicking into a higher gear.
Nonfarm payrolls increased 192,000, the Labor Department said on Friday, partly bouncing back from a weather-depressed January as private employers hired 222,000 workers, the most since April. The gains were broadly in line with expectations.
Jobs rose almost across the board, from factories to construction to most service industries. The loss of 30,000 jobs at cash-strapped state and local governments was an exception.
It's belated evidence the expansion is finally beginning to make a dent in the jobs problem that the country has, said Patrick O'Keefe, head of Economic Research at J.H. Cohn in Roseland, New Jersey. It's encouraging but it also highlights how far we have to go to regain our footing.
Until February, the government's employment gauge had largely underperformed other labor market indicators that showed an acceleration in the pace of job creation.
While Federal Reserve officials, who next meet on March 15, will likely welcome the sturdy report, they will probably still regard the pace of job creation as too slow to warrant a change to the U.S. central bank's ultra-easy monetary policies.
The unemployment rate, which stood at 9 percent in January, has dropped 0.9 of a percentage point over the past three months.
The latest drop, which confounded economists' forecasts for a rise to 9.1 percent, came even as some discouraged workers resumed the job hunt.
There are growing signs U.S. employers are getting ready to start hiring more aggressively.
Purdue University in Indiana has seen a 30 percent jump in the number of companies coming to its campus to interview undergraduates over the past year, said Tim Luzader, director of the Purdue Center for Career Opportunities.
Even so, caution prevails. More Purdue students have full-time job offers in hand this year but we haven't seen hiring activity spike in the same way we've seen recruitment activity increase, Luzader says.
Despite the relative strength of Friday's report, some investors were disappointed as they had anticipated an even bigger hiring gain. That dismay, along with a spike in oil prices due to intensifying clashes in Libya, helped push down U.S. stocks, which gave up the previous day's hefty gains.
Prices for U.S. government debt recouped some of Thursday's losses, while the dollar fell to a four-month low against a basket of currencies.
Contributing to the upbeat tenor of the report, the department said 58,000 more jobs were created in December and January than previously estimated.
Unless the shock from the Middle East worsens, an important caveat, an underlying acceleration in payroll growth is on the way, said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.
Though the economy has grown for six straight quarters and continues to show signs of gathering momentum, only a fraction of the more than 8 million jobs lost during the recession have been recovered.
Fed officials are closely watching the labor market and the unemployment rate could well determine the timing of their first interest rate hike. The central bank has held overnight lending rates near zero since December 2008.
Economists believe the Fed will want to see payroll gains in excess of 200,000 for at least six to nine months and a significant decline in unemployment before starting to withdraw its massive monetary support from the economy.
Many Fed officials think the jobless rate could be pushed to the 5-6 percent range without generating inflationary wage gains. The employment report showed average hourly earnings rose just one cent last month and were up a relatively slim 1.7 percent over the past year.
With ample slack still in the labor market, analysts expect the Fed to complete its $600 billion government bond-buying program, which is aimed at helping spur stronger growth. The program is due to wrap up in June.
If we start to add enough jobs, sufficient to lower the unemployment rate, I think the Fed will feel a little more comfortable in easing off the throttle, said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.
But right now, the economy is still fragile. There are a number of potholes that we can hit and the Fed is not going to want to act on exiting any time soon.
(Additional reporting by Lauren Young)