A woman walks to enter a line for the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, New York.  Picture: REUTERS
A woman walks to enter a line for the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, New York. Picture: REUTERS

WASHINGTON — US employment gains surged in February, the clearest sign yet of labour market strength that could further ease fears the economy was heading into recession and allow the Federal Reserve to gradually raise interest rates this year.

Nonfarm payrolls increased by 242,000 jobs last month, the US Labor Department said on Friday. The unemployment rate held at an eight-year low of 4.9% even as more people piled into the labour market.

"This is the best news the Fed could have expected going into the meeting. With jobs bouncing back, you can be sure that rate hikes are just around the corner," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The economy added 30,000 more jobs in December and January than previously reported. The only blemish in the report was a 3c drop in average hourly earnings, but that was mostly because of a calendar quirk.

The average length of the workweek also fell last month.

Economists had forecast employment increasing by 190,000 jobs in February and the jobless rate holding steady.

The employment report added to data such as consumer and business spending in suggesting the economy had regained momentum, after growth slowed to a 1% annual rate in the fourth quarter. Growth estimates for the first quarter are about a rate of 2.5%.

Fears of a recession in the wake of poor economic reports in December and slowing growth in China sparked a global stock market rout at the start of the year, causing financial market conditions to tighten.

Financial markets have priced out bets of a rate rise at the Fed’s March 15-16 policy meeting, and see a roughly 50% chance of a hike at the September and November meetings, according to CME FedWatch.

Economists, however, believe the strong jobs market and improved growth outlook, together with signs that inflation is creeping up, could prompt the Fed to lift borrowing costs in June.

The Fed raised its key overnight interest rate in December for the first time in nearly a decade.

Prices of US Treasuries fell after the data, while US stock index futures rose. The US dollar gained against the euro and hit session highs against the yen and Swiss franc.

Fed chair Janet Yellen has said the economy needs to create just less than 100,000 jobs a month to keep up with growth in the working-age population.

The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, increased two-tenths of a percentage point to 62.9%, the highest level in just over a year.

Adding to the report’s strength, a broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell two-tenths of a percentage point to 9.7%.

The employment-to-population ratio also increased to 59.8% last month, the highest since April 2009, from 59.6% in January.

While wage growth weakened in February, it was largely payback for January’s jump, which was driven by a calendar quirk. Growth in wages is seen accelerating as the labour market settles into full employment.

The drop in average hourly earnings lowered the year-on-year gain in earnings to 2.2% from 2.5% in January. The average workweek fell to 34.4 hours from 34.6 hours in January.

In February, job gains were almost broad-based, though manufacturing and mining employment fell. The services sector created 245,000 jobs after adding 153,000 jobs in January. Mining lost a further 18,000 jobs after shedding 9,000 positions in January.

Mining payrolls have declined by 171,000 jobs since peaking in September 2014, with three-quarters of the losses in support activities. More losses are likely after oilfield services provider Halliburton said last month it would cut a further 5,000 jobs because of a prolonged slump in oil prices.

Manufacturing employment lost 16,000 jobs, reversing some of January’s surprise increase. Private education jobs rebounded after plunging in January. Construction payrolls increased 19,000 and the government added 12,000 jobs.

Reuters