The economy remains strong and adds 311,000 jobs in February, although it slows down slightly and unemployment rises to 3.6%

By Christopher Rugaber - The Associated Press

The US economy added 311,000 jobs in February, once again demonstrating its strength and exceeding experts' expectations.

Despite this, growth was lower than in January, and the unemployment rate rose two tenths to 3.6%.

This second straight month of strong hiring could amplify fears that inflation is accelerating again, after months in which it had seemed to steadily decline.

In response, the Federal Reserve will likely maintain a more aggressive pace of rate hikes starting at its next policy meeting in two weeks.

An Arlington Heights, Ill., supermarket advertises for employees, on Jan. 13, 2023. Nam Y. Huh / AP

Some economists believe the central bank will announce a substantial half-point interest rate hike in the short term, instead of a quarter-point as it did at its February meeting.

In testimony before Congress this week, Chairman Jerome Powell made it clear that the Fed will increase hikes if the data confirms that the economy remains robust and inflation remains high.

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When the Fed raises its benchmark interest rate, it typically causes mortgage interest rates to rise, as well as auto, credit card, and business loans.

The goal is to cool borrowing and spending, and curb inflation.

Economists estimated that hiring would fall in February to 208,000 new jobs, according to a survey by data provider FactSet.

Fast hiring often leads companies to offer higher wages to attract or keep workers, and their higher labor costs often pass on to their customers through higher prices.

This cycle that tends to keep inflation high.

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“We have two or three more very important data releases to look at before” the next Fed meeting, Powell told the Senate Banking Committee Tuesday.

"Those are going to be very important."

In addition to this Friday's employment report, Powell was referring to the February inflation report due out next Tuesday.

On January he set off alarm bells by showing that consumer prices were reaccelerating month by month.

Strong January hiring data was the first to signal that the US economy accelerated earlier in the year.

517,000 jobs were added, the most in nearly a year, and the unemployment rate stood at 3.4%, the lowest level since 1969. Sales at retailers and restaurants also rose, and inflation, according to the measure. The Federal Reserve's favorite rose from December to January at the fastest pace in seven months.

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These numbers turned around the cautious optimism shown by the Fed in the face of a modest cooling in the economy, but enough to control inflation without triggering a deep recession.

Now, the economic outlook is more cloudy.

Soaring interest rates have tanked the housing market, and home sales have fallen for 12 straight months as the median mortgage rate has nearly doubled in that time.

The manufacturing sector is also showing signs of weakness.

Rising rates have made it harder for businesses and consumers to get loans to buy major factory goods, from machinery to cars and appliances.

By contrast, spending on services—such as travel, dining out, and attending shows—remains high.

Many citizens continue to consume leisure, an activity that was practically restricted during the start of the COVID-19 pandemic.

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According to analysts, one of the reasons why employment slowed down in February is that part of the strong hiring in January was due to one-off factors.

The weather, for example, was unusually warm, likely prompting more people to get out and spend, and allowing more construction projects to continue apace.

The Federal Reserve Bank of San Francisco, in California, estimates that weather accounted for some 120,000 jobs of the January total.

In addition, the end of the strike by UC workers meant another 36,000 January jobs.

Subtracting these two factors, job growth in January would have slowed to about 360,000 jobs, matching the average increase of the past six months.

Even at that rate, hiring is three times the level the Federal Reserve would prefer.

An increase of about 100,000 jobs a month would be enough to keep pace with population growth and prevent unemployment from rising.

Such a low figure would also mean that employers would not be as desperate to find workers and would not have to keep raising wages.

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Higher salaries are great for employees, of course.

But Federal Reserve officials say it is contributing to higher inflation, especially in labor-intensive service industries like restaurants, health care and hotels.

“Strong wage growth is good for workers, but only if it isn't eroded by inflation,” Powell said in his appearance before Congress on Wednesday.