WASHINGTON (Reuters) — U.S. job growth likely slowed to a five-month low in February as the weather-related boost in the prior two months faded, workers became more scarce and tighter financial conditions began to weigh on the labour market.
Still, the pace of hiring was probably strong enough to push the unemployment rate back below four per cent.
The U.S. Labor Department's closely watched monthly employment report on Friday could show moderation in employment growth, in line with a slowing economy that in July will mark 10 years of expansion, the longest on record. It is likely to support the Federal Reserve's "patient" approach toward further interest rate increases this year.
Non-farm payrolls likely increased by 180,000 jobs last month, according to a Reuters survey of economists. This would be the smallest gain since September. Payrolls increased by a total of 526,000 jobs in December and January as mild temperatures boosted hiring at construction sites and in the leisure and hospitality industry.
Temperatures turned chilly in February, which economists said could have reversed employment gains in these weather-sensitive industries. Economists also believed the effects of a stock market sell-off and jump in U.S. Treasury yields in late 2018 restrained February hiring, as household wealth plunged by a record $3.8 trillion (all figures U.S.) and many sources of capital for companies froze up, according to Federal Reserve data..
"We are due for some pay back after strong job growth over the last couple of months," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pa. "I also think the timing is right for the tightening in financial market conditions last year to begin to affect the employment data."
First-time applications for jobless benefits were elevated, a hint that February payrolls could surprise on the downside. Also, the Institute for Supply Management surveys showed measures of manufacturing and services sectors employment dropped in the month, while the Federal Reserve on Wednesday reported "modest-to-moderate gains" in employment in a majority of the U.S. central bank's districts.
Though the economy grew 2.9 per cent in 2018, the strongest in three years, it lost momentum as the year ended. Retail sales, homebuilding, business spending and exports all declined in December, setting the economy on a slower growth path.
Economists said employers have kept hiring at a strong pace despite low unemployment as more people returned to the labour force, including students, women and people who had dropped out to collect disability benefits.
"The labour market has been surprisingly strong and not consistent with the rest of the economy, in part because of people rejoining the labour force," said Sung Won Sohn, chief economist at SS Economics, Los Angeles.
"That reservoir is getting low. I don't expect a lot of people rejoining the labour force, so the risk to payrolls is on the downside going forward."
The labour force participation rate, or the proportion of working-age Americans who have a job or are looking for one, hit a more than five-year high of 63.2 per cent in January.
Still, job gains are expected to remain well above the roughly 100,000 per month needed to keep up with growth in the working-age population. The unemployment rate is forecast dropping one-tenth of a percentage point to 3.9 per cent in February.
The January jobless rate was lifted by federal government workers who were temporarily unemployed during a 35-day partial shutdown, the longest shutdown in history, which ended on Jan. 25.
A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, is expected to have dropped in February after hitting an 11-month high of 8.1 per cent in January because of the government shutdown.
Average hourly earnings are forecast to have risen 0.3 per cent in February, partly because of a calendar quirk, after gaining 0.1 per cent in January. That would raise the annual increase in wages back to 3.3 per cent from 3.2 per cent in January. Overall, wage inflation remains moderate.
A report on Thursday showed labour costs rising only 1.4 per cent in 2018, the smallest gain since 2016, after increasing 2.2 per cent in 2017.
"We don't view current labour compensation trends as a serious upside inflation risk, but they should be firm enough to allay Fed doves' concerns about the potential for decelerating price trends," said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, N.J.
Revisions to December and January payrolls data will be watched closely, with some economists saying there has been a decline in the response rates to the survey of employers.
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