WASHINGTON -- U.S. companies added jobs at a stronger-than-expected pace in February without an inflationary increase in wages, offering relief to stock and bond investors apprehensive that the Federal Reserve might push interest rates higher.
The economy created 275,000 jobs last month, exceeding analysts' forecasts of a gain of 244,000 and January's increase of 217,000, Labor Department figures showed yesterday, drawing from a survey of employers. A surge in retail and construction hiring was tempered by a drop in factory payrolls.
Workers' average hourly earnings rose just 1 cent last month and are up 3.6 percent over the past year, the slowest pace of increase in 19 months. "We can grow without inflation -- growth without wage and price pressures, " said Kenneth Mayland, chief economist at KeyCorp in Cleveland.
At the same time the unemployment rate -- which comes from a different Labor Department survey of households -- unexpectedly rose a tenth of a point to 4.4 percent last month. That survey found fewer workers in the labor force during the month.
Separately, the Fed reported consumer borrowing rose by $14.7 billion to $1.316 trillion in January, three times the amount analysts had expected. It was the biggest increase in more than three years, the Fed said.
Economists watch the Fed's credit report because it helps them gauge consumer spending, which accounts for two-thirds of economic output. The report doesn't track loans secured by real estate, such as home-equity loans.
Stocks and bonds gained yesterday on the employment news and optimism that Fed policy-makers might see little need to raise the overnight bank lending rate to slow the economy.
The benchmark 30-year Treasury bond gained $1.375, its biggest rally since October, pushing down its yield 10 basis points to 5.6 percent.
Stocks increased, with the Dow Jones industrial average rising 268.68 points, or 2.84 percent, to close at a record 9,736.08.
Some analysts warned that the decline in factory jobs played a role in the small wage increase.
"High-paid manufacturing workers weren't in there and low-paid retail workers were," said Diane Swonk, deputy chief economist at Bank One Corp. in Chicago. "To think that wage pressures are abating is really kind of silly."
Without signs of inflation, the chance of the Fed raising interest rates is unlikely, analysts said. "Greenspan said they're going to give the economy a chance," said Suzanne Rizzo, an economist at Maria Fiorini Ramirez Inc. in New York. "The only news in this number is the economy has a lot of forward momentum."
Overall average weekly hours worked rose to 34.7 last month from 34.5 in January, and the index of hours worked, a gauge of economic growth that combines changes in the work week and changes in payroll growth, rose to 147.3 last month from 146.4 during January.
Average weekly earnings increased to $452.49 last month, up from $449.54 during January.
But it was the restrained increase in hourly wages that caught analysts' eyes.
"Companies have no pricing power. No matter how tight the labor market gets, an inflation breakout is just not going to happen under those circumstances," said Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York.
The government's survey of companies showed employment in the service sector rose by 263,000 last month, led by a 123,000 increase in retail hiring, the biggest gain since 1988.
Construction employment rose by 72,000, helped by unseasonably warm weather that kept builders busy.
Temperatures ranged from 5 degrees to 15 degrees above normal across the eastern two-thirds of the country during the week of Feb. 7, resulting in more than 225 daily-record highs, according to a report from the Department of Agriculture. That's the same week as the monthly employment survey.
The news wasn't all good. Manufacturing continued to suffer the effects of a global slowdown, as factory employment decreased by 50,000 last month. That brings the total number of factory job cuts to 337,000 since last March.
Pub Date: 3/06/99