February Jobs Report Argues for a 25bps Hike vs. 50bps

  • Nonfarm payroll jobs beat expectations with 311 thousand new jobs vs. 225 thousand expected but well off the 504 thousand jobs in January. The unemployment rate rose 2/10ths to 3.6% as the labor force grew with not all finding a job during the month. Job gains remained strong in leisure and hospitality, health care, retail trade and government. Job losses were in manufacturing along with transportation and warehousing. While the headline gain will garner a lot of attention, there was plenty in the report that indicated some moderation in labor market tightness. We will discuss some of those items below.


  • Importantly for the Fed, wages came in light of expectations. The monthly wage gain was 0.2% vs. 0.3% expected while the year-over-year pace rose to 4.6% vs. 4.7% expected and 4.4% in January. In addition, Average weekly hours decreased to 34.5 from 34.6 hours while expectations were for a stable 34.6 hours. Weekly hours peaked at 35.0 hours a year ago. All things considered, the wage components in this report reflect scant evidence of a wage-price spiral and that will increase odds of a 25bps hike vs. 50bps.


  • The unemployment rate rose from 3.4% to 3.6%, worse than the 3.4% expectation.  The pick-up in the rate was due to the labor force increasing by 419 thousand people, but not all of those new entrants found jobs in February. The Household Survey, which generates the various employment and labor force rates, reported 177 thousand new jobs and an increase of 242 thousand unemployed.  All-in-all, the increase in the labor force will be another friendly element in today’s report for the Fed.


  • In line with the increase in the labor force, the Labor Force Participation Rate increased to 62.5%, beating the 62.4% expectation and 62.4% in January.  The participation rate a decade prior to the pandemic averaged 63.3% while the average over the past year has been 62.3%. However, the 62.5% rate in February does represent the highest participation since the pandemic began. This increase will be welcome news at the Fed and will be another argument for a 25bps hike vs. 50bps.


  • The Fed will breathe a sigh of relief with this report. While headline job gains did beat expectations, it didn’t reflect anything close to the strength in January, and the underlying metrics from wage gains to labor force participation argue that the labor market is not exhibiting as much tightness as it did late last year. The decision to hike 25bps or 50bps at the March 22 meeting continues to hang in the balance and will be ultimately decided by next Tuesday’s CPI report, but from a labor market perspective only the Fed will have a hard time building a case for a 50bps hike off today’s report.

Labor Force Participation Rate Hits Pandemic-Era High



Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 5.70 5.43 5.33 5.29 5.25 5.71
0.50 5.68 5.40 5.27 5.18 5.11 5.60
1.00 5.68 5.37 5.24 5.13 5.02 5.47
2.00 5.36 5.18 5.05 4.90 NA
3.00 5.01 4.84 NA
4.00 4.79 NA
5.00 4.76 NA
10.00 NA

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Published: 03/10/23 Author: Thomas R. Fitzgerald