Employers added 678,000 jobs in February and the unemployment rate fell to the pre-pandemic level of 3.8%, but high wage growth, the Ukraine war, and future Federal Reserve interest rate increases will likely slow job growth for the remainder of 2022.
Large wage gains (5.7% year-to-year) can’t keep up with inflation. When adjusted for inflation, hourly wages have dropped by 2.4% over the past year and real weekly earnings dropped by 2.1%. Wages also failed to increase in February suggesting employers may be reaching their limit regarding labor costs.
Only 359,000 Americans who remain out of the labor force say they would like a job. This is low compared to pre-pandemic levels and suggests employers will continue to have difficulty filling their 10.9 million job openings.
Job gains were broad-based with restaurants and bars leading the way as COVID cases dropped and masking requirements were relaxed. Largest gains were in:
- Restaurants and bars (+123,700);
- Professional and business services (+95,000);
- Health care (+63,500); and
- Construction (+60,000).
The economy has recovered 90% of the jobs lost to the COVID pandemic. At the current pace of job growth, all the jobs will be regained by June 2022.
Outlook: Future Federal Reserve interest rate hikes will likely slow economic growth and while consumers are sitting on more than $2 trillion of savings accumulated over the past two years, high gas and food prices will take spending away from other items. Moreover, uncertainty regarding the impact of the war in Ukraine on inflation and consumer sentiment remains unclear at this early point in the conflict.