U.S. job growth strong, but wages lag

WASHINGTON – The economy showed surprising strength last month in the face of a ports slowdown on the West Coast, severe winter weather in the Northeast and a rising dollar overseas.

Employers added a robust 295,000 net new jobs in February, and the unemployment rate fell to a post-Great Recession low of 5.5 percent.

“There was a possibility of a February freeze-up, but instead we got a barnburner of a jobs report,” said Mark Hamrick, Washington bureau chief of financial information website Bankrate.com.

Still, there was a worrisome reminder in the Labor Department report Friday that the recovery still has a way to go: Americans once again saw just a minimal bump in their paychecks.

Average hourly earnings rose by only 3 cents to $24.78 after an encouraging 13-cent increase in January. For the 12 months ended Feb. 28, wages increased 2 percent.

Although that’s well above the low inflation rate, it’s not nearly the level economists would like to see coming out of a deep recession.

“Clearly that’s the bus that has yet to arrive,” Hamrick said of wage growth. “There’s a lot to celebrate in this report, but the wage component is quite sobering.”

The top-line numbers were excellent.

Job growth was a significant improvement over January’s 239,000, which was revised down Friday by 18,000. February was the 12th straight month in which the economy added more than 200,000 net new jobs, the best streak since 1994-95.

Economists were expecting weaker job growth of about 230,000 last month, given the head winds in the economy.

In addition, a 0.2 percentage point drop in the unemployment rate put it at the lowest level since May 2008.

Part of the reason for the decline, however, was that about 178,000 job seekers dropped out of the labor force. That caused the labor force participation rate to tick down by a tenth of a percentage point to 62.8 percent, near a more-than-three-decade low.

Still, the data showed a labor market that continued to gain momentum.

“You may quibble over some of the details, but it’s hard to argue over a report that has 295,000 jobs as a headline,” said Gus Faucher, senior economist at PNC Financial Services Group.

The upbeat report bolstered expectations that the Federal Reserve would start raising its rock-bottom benchmark interest rate in June.

Rising interest rates would make investing in the stock market less attractive. And with the first Fed rate hike since 2006 appearing more likely, on Friday the Dow Jones industrial average dropped 278.94 points, or 1.5 percent, to 17,856.78.

Economists were disappointed that wage growth slowed significantly last month.

“That’s the missing piece of the labor market puzzle: better wage growth,” Faucher said.

Economists keep anticipating a bigger boost in earnings, figuring that improved job growth and reduced unemployment should force employers to raise wages to lure and keep workers.

“I fully expect that as the labor market continues to strengthen, as I hope it will, that wage growth will move up, and Americans will find that they’re getting a raise,” Fed Chairwoman Janet Yellen told lawmakers last week. “That would be a symptom of a healthier job market.”

Hopes were lifted after Wal-Mart Stores Inc. announced last month that it would raise the minimum pay for its workers to $9 an hour in April, $1.75 more than the federal minimum wage. Analysts said the move showed more demand for workers.

Competition still appears to be largely for low-wage jobs, however. And pay increases for those positions don’t boost overall earnings by much.