NEW YORK (Reuters) – U.S. employers hired far more workers than expected in February, pushing the labor market closer to maximum employment, but rising headwinds from geopolitical tensions could hurt business confidence and slow job growth in the months ahead.

The Labor Department’s closely watched employment report’s survey of establishments on Friday showed nonfarm payrolls surged by 678,000 jobs last month, much more than the 400,000 economists polled by Reuters had forecast. Data for January was revised higher show 481,000 jobs created instead of 467,000 as previously reported. The unemployment rate fell to 3.8%, the lowest since February 2020, from 4.0% in January.

MARKET REACTION:

STOCKS: S&P e-mini futures seesawed and were last off 1.05%, deepening an early loss

BONDS: The yield on the benchmark 10-year note fell to 1.7666%; Two-year Treasury yields eased to 1.51%

FOREX: The dollar index was up 1.06% after adding to gains

COMMENTS:

LIZ YOUNG, HEAD OF INVESTMENT STRATEGY, SOFI

“The reaction here is that this was a strong labor report. (Fed chair) Jerome Powell this week basically said that we’re at maximum employment and this further reinforces that, if not, makes it even more maximum employment.”

“It basically tells the Fed you have no excuse, aside from possible contagion risk out of Russia and Ukraine. You have no excuse not to go hard at this inflation problem.”

JJ KINAHAN, CHIEF MARKET STRATEGIST, TD AMERITRADE, CHICAGO

“If Chairman Powell were going in front of Congress again today, I don’t think he would change anything he said over the last couple of days.

“The last couple of (unemployment) reports we’ve been a little bit disappointed at times with some of the numbers. This one is kind of evening out that a little bit in terms it is truly a blowout number.

“If Ukraine wasn’t out there this report would be telling us the economy is pretty red-hot. Without Ukraine there would probably be more pressure to have a 50 basis point rate hike than there will be with Ukraine.”

BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST FOR MULTI-ASSET SOLUTIONS, ALLSPRING GLOBAL INVESTMENTS (email)

    “There’s a lot to like about the employment situation report except that wages are still falling short of consumer price increases. With higher food and fuel prices, consumer budgets will still be under pressure. Thankfully the consumer looked to be in a pretty good position going into this conflict.”

MICHAEL PEARCE, SENIOR US ECONOMIST, CAPITAL ECONOMICS

“The stronger-than-expected 678,000 gain in non-farm payrolls in February and upward revisions to previous months gains is another sign that the real economy has considerable momentum, with the Omicron wave having surprisingly little impact. That will give the Fed greater confidence to push ahead with its planned policy tightening but, with wage growth now leveling off, there is arguably less pressure for officials to front-load an aggressive series of rate hikes over the coming months.”

“The one big surprise in this report was average hourly earnings, which were unchanged in February, with the annual rate dropping to 5.1% from 5.7%. With the composition of payroll gains broad-based, most of that deceleration appears to reflect a genuine easing of pay pressures. While that might seem at odds with the falling unemployment rate, the job openings and quits rates and broader survey evidence have suggested labor shortages are leveling off a bit, which is consistent with pay growth stabilizing.”

SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, NEW YORK

“Already there are concerns with the Ukraine crisis and this would’ve put additional pressure under the Fed to be more aggressive because of the number of jobs being added and unemployment rate coming down that could put more upward pressure on wage growth. But, because the average hourly earnings actually came in lower than expected it has caused investors to breathe a sigh of relief.”

“We have yet to see a capitulation in share prices and we will need to see that before we can say that the worst is behind us.”

“We’ve seen bond yields initially decline and are at 1.78% right now for the 10-year and that actually has been supportive of more of the growth oriented sectors because of the flight to safety by investors. However, because investors are gravitating towards bonds at the same time that we are seeing a surge in oil prices, rise in inflation and the expected start to a rate tightening cycle this also threatens a flattening yield curve which is usually not a good sign for the markets.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“The good news is hourly wages were actually flat and up 5.1% on a yearly basis, which still high, but today’s numbers seem to be diminishing that fear of wage inflation. That’s something that the Fed is obviously look at very carefully.”

“It’s a strong report, no question about it, no further increases in hourly wages suggests wage growth that we’ve seen might be coming to a halt.”

“Unemployment was down to 3.8% and the participation rate is up a bit.”

“That question mark – where are all these people and why are they not going back to work? Now that the participation rate is going up it means people are returning to the labor force.”

“It does not change the picture for March. Even due to the current circumstances, the Fed cannot risk not raising rates. They are going to pursue a dovish hike rate this month, nothing that could come back to haunt them due to the geopolitical situation.”

“The key now is the price of oil. If the price of oil should continue to rise, then the Fed is going to have to get more aggressive. Commodity inflation could reach a point where it could be damaging to economic growth.”

THOMAS HAYES, CHAIRMAN AND MANAGING MEMBER, GREAT HILL CAPITAL LLC, NEW YORK

“The number is fantastic. Even manufacturing was nearly twice as good as expected, and the average weekly hours ticked up. all in all, seeing the unemployment rate drop down as well, is all positive and gives chair Powell the green light to go ahead with his 25 bps cut at the next meeting, in spite of the geopolitical headwinds. It shows that COVID is largely in the rear view mirror, the recovery is robust and as we work through geopolitical headwinds, this economy can roar.”

“The most important thing in this report is that the average hourly earnings came in much lower than expected. We’re seeing the base effects start to kick in and people who are scared about inflation are going to start to see some relief in the coming months as more supply of labor comes into the market. We saw the labor force participation rate pick up, that’s going to leave some of the wage price pressure and inflation numbers overall should start to improve in coming months…maybe we’ll see some relief in prices and wages by summertime.”

“But the key issue the average hourly earnings, which is a relief for everyone worried about inflation. All in all recovery’s robust, COVID seems to be winding down and we’re starting to get numbers that are showing inflation moderating.”

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NC

    “It’s a very strong report. It’s going to be overshadowed by events in Ukraine and another sign the job market is hot and that the Fed needs to move more quickly to start raising rates,”

    “There’s no doubt we’ve got a hot job market and high inflation. Regardless of what’s happening in Ukraine, the Fed must move quickly.”

(Compliled by the global Finance & Markets Breaking News team)

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