Strong job growth makes Fed rate hike almost certain

Employers added 235,000 jobs in February as mild weather and increased business confidence spurred strong hiring for a second straight month, almost certainly cementing a Federal Reserve rate hike next week.

The unemployment rate, which is calculated from a different survey, fell to 4.7% from 4.8%, the Labor Department said Friday, as a large increase in the labor force -- the number of Americans working or looking for jobs -- was more than offset by an even bigger rise in employment

Economists had forecast 190,000 job gains, according to the median estimate of a Bloomberg survey.

Average hourly wages rose 6 cents to $26.09, nudging annual gains back near a seven-year high at 2.8% from 2.5%. Pay increases unexpectedly slowed in January despite minimum wage hikes by 19 states, and many economists predicted the higher base pays and tight labor market would spur a rebound in February. Pay gains are expected to accelerate as the low unemployment rate forces employers to bid up to attract a smaller pool of workers.

The better-than-expected report "will erase any lingering doubts" about a Fed rate increase next week, economist Paul Ashworth of Capital Economics wrote in a note to clients. Fed officials indicated last week a hike was all but certain. The Fed raised its benchmark rate in December for just the second time in the past decade, and central bank officials have forecast three rate increases this year to head off a surge in inflation in an improving economy.

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Businesses added  227,000 jobs last month across a broad base of industries. Federal, state and local governments added 8,000. A federal hiring freeze was expected to reduce public-sector payrolls but that didn't materialize.

Job gains for December and January were revised up by 9,000. December’s was revised down to 155,000 from 157,000, but January’s was raised to 238,000 from 227,000.

Another encouraging sign: A broader unemployment measure that includes discouraged workers and part-timers who prefer full-time jobs fell to 9.2% from 9.4%.

Many analysts expected a healthy showing, noting that mild winter weather likely boosted hiring, particularly in sectors such as construction. Contractors, in fact, added an outsize 58,000 jobs last month. Education and health added 62,000 jobs; professional and business services, 37,000; and leisure and hospitality, 26,000. Manufacturers added 28,000 jobs, reflecting the oil sector's rebound and an improving global economy, which are helping U.S. factories bounce back from a prolonged slump.

Other labor market indicators for February were also positive. Payroll processor ADP said businesses added 298,000 jobs. Jobless claims have hovered near 40-year lows. And a measure of service-sector employment hit a five-month high. .

“You can certainly make the argument that businesses are feeling more energized by the Trump administration” as anticipation of reduced taxes and regulation spurs more hiring, said economist Gus Faucher of PNC financial Services Group.

But like other economists, he expected job growth to slow further this year because fewer people on the sidelines are looking for work. Faucher expects average monthly gains of 175,000, down from 180,000 last year and 226,000 in 2015.

“There’s a limit to how many people we can bring in,” he said.