Job growth defied early market volatility this year by posting stronger than expected February gains, however a large contraction in manufacturing is leaving doubts over long-term economic stability.
The economy added 214,000 jobs in February driven by a booming service sector which accounted for 208,000 jobs, according to a new employment report from ADP, which tracks the U.S. labor market in collaboration with Moody’s Analytics. The manufacturing sector experienced a large contraction and lost 9,000 jobs, the second largest drop in five years, pointing to depleted demand, according to the ADP report.
“Large businesses showed surprisingly strong job gains in February, despite the continuation of economic trends that negatively impact big companies like turmoil in international markets and a strengthening dollar,” Ahu Yildirmaz, vice president and head of the ADP Research Institute, said in the report. “The gains were mostly driven by the service sector which accounted for almost all the jobs added by large businesses.”
Investors are celebrating the report, which beat expected gains of 190,000 jobs. The employment summary comes ahead of the non-farm payrolls report form the Bureau of Labor Statistics on Friday. Analysts expect the government report to show job gains of roughly 195,000, reports Business Insider.
The seemingly strong labor market has renewed conversations about the possibility of an interest rate hike by the Federal Reserve in March. Federal Reserve Chair Janet Yellen has maintained her position in the face of panicked markets that the economy is fundamentally strong and ready for tighter monetary policy.
The Federal Reserve raised rates for the first time in a decade in December, just preceding the historic market turmoil of January. A strong labor report from the government Friday may push the Federal Reserve into acting on its rhetoric, despite unsteady energy prices and instability in China. Tightening by the Federal Reserve would run counter to the negative interest rate policies seen in from European Central Bank and Bank of Japan.
Mark Zandi, chief economist of Moody’s Analytics, says the U.S. labor market is exceedingly strong and proving resilient to global market influences. Zandi feels that fears of recession are unfounded, and to the contrary, the U.S. is nearing its lowest unemployment in years.
“Despite the turmoil in the global financial markets, the American job machine remains in high gear,” Zandi said in the ADP report. “Energy and manufacturing remain blemishes on the job market, but other sectors continue to add strongly to payrolls. Full-employment is fast approaching.”
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