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WASHINGTON, March 4 (Reuters) – U.S. employers likely maintained a healthy pace of hiring in February, bringing the labor market closer to peak employment, but mounting headwinds from geopolitical tensions could hurt business confidence and slow job growth in the months ahead.
Friday’s closely watched Labor Department jobs report is expected to show labor market conditions tightening further, with the jobless rate resuming its downward trend and a shortage of workers continuing to drive up wages.
Federal Reserve Chairman Jerome Powell this week described the labor market as “extremely tight” and told lawmakers he would support a 25 basis point interest rate hike at the policy meeting in the US central bank from March 15-16 and that it would be “ready to act more aggressively” later if inflation does not come down as fast as expected. Read more
Oil prices have surged above $100 a barrel since Russia launched a war on Ukraine last Thursday, citing a barrage of sanctions against Moscow by the United States and its allies.
“The jobs report will show that the U.S. economy is healthy and continues to move forward,” said Sung Won Sohn, professor of finance and economics at Loyola Marymount University in Los Angeles. “But geopolitical issues will push inflation higher and have created a huge amount of uncertainty that will dampen economic growth and employment going forward.”
The establishment survey is expected to show nonfarm payrolls rose by 400,000 jobs last month after rising by 467,000 in January, according to a Reuters poll of economists.
That would leave 2.5 million jobs below its pre-pandemic level. Economists expect all lost jobs to be recovered this year. February payroll estimates range from as little as 200,000 to 730,000 job gains.
Payrolls rose sharply in January, despite a record 3.62 million people absent from work in the middle of this month due to illness, as the country reeled from a winter wave of cases caused by the Omicron variant of COVID-19.
Infections have since declined sharply. The Census Bureau’s Household Pulse Survey showed about 7.8 million people were off work in early February because they were caring for someone or were sick with coronavirus symptoms, down 1 million from early January.
The number of people receiving state unemployment benefits was the smallest in 52 years as of mid-February. Also arguing for strong job gains, data from Homebase, a payroll scheduling and tracking company, showed substantial increases in the number of employees at work as well as hours worked in mid-February.
February shiftwork recorded its biggest monthly gain since the spring of 2020, another survey by workforce management software firm UKG showed.
But payrolls could be lower than expected after a survey by the Institute for Supply Management showed a measure of service-sector employment contracted in February on Thursday for the first time since last June. The ISM reported earlier this week that manufacturing job growth slowed last month.
The Fed’s Beige Book report on Wednesday showed that “widespread strong demand for workers remains hampered by equally widespread reports of labor shortages.” There were nearly 10.9 million record job openings at the end of December.
“I’m more in favor of a lower payroll number, but with a pretty good payroll number,” said James Knightley, chief international economist at ING in New York. “All the evidence suggests that companies are trying to recruit staff and also retain staff because of these high turnover statistics.”
Job gains last month were likely concentrated in the leisure and hospitality industry as well as retail and other sectors that were hardest hit by Omicron in January. Moderate gains in professional and business services employment are likely, as the ISM survey showed that companies in this industry were “struggling to hire direct employees and unpaid labor”.
The unemployment rate is expected to fall to 3.9% from 4.0% in January. Economists believe the labor force participation rate, or the proportion of working-age Americans who have jobs or are looking for one, likely rose last month.
With labor scarce, average hourly earnings are expected to rise 0.5% in February after rising 0.7% in January. This would bring year-on-year wage growth to 5.8%, from 5.7% in January. Wages were increased in January as Omicron kept some lower hourly paid workers at home.
Economists said the February jobs report would support a 25 basis point rate hike from the Fed this month. In the wake of January’s jobs report and high inflation readings, financial markets priced in a half-percentage-point rise.
But that is no longer relevant amid concerns over the fallout from the Russian-Ukrainian war. Economists expect seven rate hikes this year.
“Indeed, the current energy price shock creates a real nexus for central bankers,” said Gregory Daco, chief economist at EY-Parthenon in New York. “Given the high inflation environment, Fed policymakers will want to balance the risk of a ‘stagflationary’ shock and a shift to a higher inflation regime with the risk of normalizing policy too quickly and to precipitate the continued tightening of financial conditions.”
The working week, which was impacted by Omicron in January, is expected to drop from 34.5 hours to 34.6 hours.
Reporting by Lucia Mutikani; Editing by Andrea Ricci
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