U.S. Employers Added 313,000 Jobs in February

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WASHINGTON—Strong hiring is drawing people into the U.S. labor market, a healthy mix that suggests the economy can run strong without overheating and forcing the Federal Reserve to curb growth with aggressive interest-rate increases.

Nonfarm payrolls rose a seasonally adjusted 313,000 last month, the strongest monthly gain since July 2016, the Labor Department said Friday.

More than 800,000 Americans joined the labor force in February, according to the report, most bypassing unemployment and jumping straight into jobs. It was the largest one-month increase in the labor pool since 1983, outside months that included one-time Census hiring.

A growing supply of labor, in turn, helped keep the unemployment rate from falling further. It held at 4.1% in February, its lowest level since December 2000, for the fifth straight month.

Low unemployment, in theory, creates wage and inflation pressure as firms compete for scarcer labor. But with people rejoining the labor force and preventing the jobless rate from falling further, wage growth was muted last month.

Average hourly earnings for all private sector workers increased 4 cents last month to $26.75. Wages rose 2.6% from a year earlier in February. That was less than a revised increase of 2.8% in January. The average workweek also rose—meaning firms were looking for ways to get more output from the workers they had—and weekly paychecks rose.

“There appears to still be room to move more potential workers from the sidelines and back into the ranks of the employed,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

Most people want to see worker wages move higher. But if wages and inflation were to shoot up sharply, Fed officials might be compelled to raise short-term interest rates more aggressively than planned to prevent the economy from overheating.

In December, the Fed projected three quarter-percentage-point interest rate increases in 2018, with the next one expected later this month. Friday’s jobs report gives the Fed little reason to deviate from that plan, perhaps moving rates up a fourth time before year-end but not much more aggressively.

Top officials are hoping the move of workers off the sidelines and into jobs will mean more output and income for the U.S. without wage and inflation pressures becoming so intense that central bank decides it must to hit the brakes on economic growth.

“We’ve seen the labor force participation rate go sideways now for four straight years, and that is actually a big gain against what is a downward trend due to aging and other things,” Federal Reserve Chairman Jerome Powell told members of Congress last week. “We’ve seen people either not leaving or coming back in the labor force as it’s gotten tighter.”

Investors welcomed the prospect of continued strong job growth and low interest rates. The Dow Jones Industrial Average rose more than 100 points, above 25000, after the report.

January’s initial estimated wage gain—showing the biggest increase since the recession ended—had stoked concerns in financial markets that bigger than expected paychecks would lead to higher inflation and cause the Fed to shift its plan toward more aggressive rate increases.

Though the unemployment rate is low, broader measures of unemployment are still elevated, suggesting there is still slack in the labor market that firms can draw from to increase worker output without very aggressively bidding up wages.

One measure that includes Americans in part-time jobs or still too discouraged to look for work held steady at 8.2% in February. That rate, known as the U-6, remains elevated compared with the last time the headline rate touched 4%. In December 2000, the broader measure was 6.9%.

If firms convert part-time workers to full-time workers or draw in more discouraged people not currently looking for work, that broad measure of labor slack might fall further without pushing down conventional measures of unemployment.

Hiring in February was broad-based. Construction firms added 61,000 workers, the biggest increase in nearly 11 years for the sector. Hiring picked up at retailers, manufacturers and local governments, including schools. All levels of government added 26,000 workers, also the best gain since July 2016.

Revised figures show employers added 239,000 jobs in January and 175,000 in December, a net upward revision of 54,000.

The pace of hiring has picked up recently. Hiring in the first two months of 2018 is outpacing 2017’s average monthly growth of 182,000. That runs counter to economists’ expectation for hiring to broadly ease as the labor market tightens.

Write to Eric Morath at eric.morath@wsj.com and Sharon Nunn at sharon.nunn@wsj.com

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