Robust U.S. job growth boosts economy as coronavirus rages

WASHINGTON (Reuters) – U.S. employers maintained a robust pace of hiring in February, giving the economy a strong boost as it confronts the coronavirus outbreak that has stoked financial market fears of a recession and prompted an emergency interest rate cut from the Federal Reserve.

The Labor Department’s closely watched monthly employment report on Friday also showed solid monthly wage growth and the jobless rate falling back to near a 50-year low of 3.5%.

Employers also increased hours for workers last month.

While the upbeat report likely does not fully capture the impact of the coronavirus, which spread in the United States beginning in late February, there are so far no signs that the epidemic has hurt the labor market.

Layoffs remain low and small businesses and services sector industries continue to hire at a solid clip.

The Fed on Tuesday slashed its benchmark overnight interest rate by a half percentage point to a target range of 1.00% to 1.25%, in the U.S. central bank’s first emergency rate cut since 2008 at the height of the financial crisis.

Fed Chair Jerome Powell acknowledged the economy’s strong fundamentals, but said “the coronavirus poses evolving risks to economic activity.”

Nonfarm payrolls increased by 273,000 jobs last month, matching January’s tally, which was the largest since May 2018. While transportation and warehousing payrolls fell by 4,000 jobs last month, showing some early impact from the coronavirus, they were more than offset by strong gains nearly across all sectors, including government. The economy created 85,000 more jobs in December and January than previously reported.

Economists polled by Reuters had forecast payrolls increasing by 175,000 jobs in February. The economy needs to create roughly 100,000 jobs per month to keep up with growth in the working-age population. Employment gains averaged 243,000 per month in the last three months.

The government canvassed business in mid-February. At least 12 people have died in the United States from the respiratory disease called COVID-19 caused by the coronavirus and more than 100 have been infected. The deaths and rise in infections were recorded starting the final week of February. Overall, the fast-spreading disease has killed more than 3,000 people and sickened nearly 100,000, mostly in China.

Transportation and warehousing payrolls fell likely because of travel restrictions which were enforced by some authorities to curb the spread of the illness. There have also been reports of declines in shipping container volumes at ports.

Economists believe employers are most likely to cut hours for workers initially and proceed to layoffs if the epidemic persists beyond the second half of this year and into 2021. So far, weekly applications for unemployment benefits, the most timely labor market indicator, were trending low in early March.

Global outplacement firm Challenger, Gray & Christmas on Thursday reported a sharp drop in layoffs announced by U.S.-based companies in February and said the coronavirus outbreak “has not yet caused companies to cut positions.”

Still the virus, which causes a flu-like illness, is expected to slow job growth in the coming months.

The highly contagious virus has rattled investors, who have continued to dump risky assets such as stocks despite the Fed rate cut, in favor of safe-haven U.S. government bonds. The 10-year U.S. Treasury yield has dropped below 1%. Economists say fiscal stimulus is needed to cushion the economy against the disruptions from the coronavirus, though many believe financial market fears of a recession are a bit premature.

Labor market strength was reinforced by steady wage growth. Average hourly earnings rose 0.3% in February after gaining 0.2% in January. The annual increase in wages, however, slipped to 3.0% in February from 3.1% in January as last year’s large gain falls out of the calculation. The average workweek increased to 34.4 hours last month from 34.3 hours in January.

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The jobless rate fell to 3.5% last month. It increased one-tenth of a percentage point to 3.6% in January as more people joined the labor force, in a sign of confidence in the job market.

Construction payrolls increased by 42,000 after surging 49,000 in January. Manufacturing employment increased by 15,000 jobs after falling 20,000 in January. Manufacturing has been beset by problems ranging from the U.S.-China trade war to Boeing’s (BA.N) suspension in January of the production of its troubled 737 MAX jetliner.

Government payrolls increased by 45,000 in February, boosted by increases in state government education. About 7,000 temporary workers were hired for the decennial population count.

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