(Adds Fed rate poll, updates markets to close)
* Nonfarm payrolls rise 295,000 in February
* Unemployment rate falls to 5.5 percent from 5.7 percent
* Average hourly earnings rise three cents
* Trade deficit narrows to $41.8 billion in January
By Lucia Mutikani
WASHINGTON, March 6 (Reuters) – U.S. employers stepped up
hiring in February and the jobless rate fell to its lowest level
since the spring before President Barack Obama took office,
which could put pressure on the Federal Reserve to raise
interest rates in June.
Nonfarm payrolls increased 295,000 last month after rising
239,000 in January, the Labor Department said on Friday. The
broad job gains came despite disruptive winter weather that took
hold across large parts of the country in mid-February.
The unemployment rate dropped two-tenths of a percentage
point to 5.5 percent, the lowest since May 2008, slipping into
territory that some Fed officials consider consistent with full
“The labor market is on a roll. This should ease fears at
the Fed that the global downturn and sharp drop in oil prices
are materially disrupting the U.S. economic outlook, and keep
the Fed firmly on course for a June lift-off,” said Scott
Anderson, chief economist at Bank of the West in San Francisco.
U.S. stocks and shorter-dated government bonds fell sharply
as traders brought forward bets on when the Fed would raise
rates. The dollar hit an 11-1/2-year high against the euro,
which has been under pressure since the European Central Bank
announced a bond-buying program to lower euro zone borrowing
Last month’s decline in the unemployment rate, however,
largely reflected people dropping out of the labor force.
But economists, who had expected payrolls to rise only
240,000 and the unemployment rate to fall to 5.6 percent, noted
that other indicators monitored by the U.S. central bank showed
a rapidly tightening labor market.
February marked the 12th straight month that employment
gains have been above 200,000, the longest such run since 1994.
Average hourly earnings rose by three cents last month,
leaving the year-on-year gain at 2 percent. That compared to a
2.2 percent rise seen in the 12 months through January.
While economists acknowledged that persistently sluggish
wage growth and very benign inflation argued against the Fed
pulling the trigger in June, they said tightening conditions in
the labor market could force the central bank’s hand.
A Reuters survey of 16 large banks conducted after the jobs
report found that many economists expect a June rate hike.
“Even if the Fed decides to delay the lift-off in policy, it
is hard to see the downward trend in unemployment not
continuing,” said Jeremy Lawson, chief economist at Standard
Life Investments in Edinburgh, Scotland.
“Will the Fed really want short-term interest rates to be
negative when the unemployment rate falls below 5 percent late
this year or early next year?”
Fed officials are monitoring pay data closely to help
determine when enough pressure has built in the jobs market to
merit higher borrowing costs to keep the economy from
The central bank has kept its key overnight lending rate
near zero since December 2008.
Wage growth could get a lift from an announcement last month
by Wal-Mart, the world’s largest retailer, that it would
spend more than $1 billion this year to increase wages for about
40 percent of its U.S. workforce.
Other companies including TJX Cos Inc and health
insurer Aetna also have announced pay increases.
The closely followed employment report was released a little
more than a week before the Fed’s March 17-18 policy meeting.
Many economists expect the central bank could signal its
openness to a June rate hike by dropping a pledge to be
“patient” in considering such a move.
“It is most likely they will drop ‘patience’ in March,” said
Samuel Coffin, an economist at UBS in Stamford, Connecticut.
February’s sturdy jobs report reinforces the view that a
recent cooling in economic growth reflects temporary factors,
such as harsh winter weather and a now-settled labor dispute at
West Coast ports.
That dispute weighed on exports and imports in January as
the trade deficit narrowed by $3.8 billion to $41.8 billion, a
separate report from the Commerce Department showed.
While the labor force participation rate, or the share of
working-age Americans who are employed or at least looking for a
job, fell one-tenth of a percentage point to 62.8 percent last
month, other measures on the Fed’s so-called dashboard improved.
A broad measure of joblessness that includes people who want
to work but have given up searching and those working part-time
because they cannot find full-time employment fell to its lowest
level since September 2008.
The number of Americans unemployed for 27 weeks or longer
also dropped to a six-year low.
Overall, private payrolls increased 288,000 last month, with
construction employment rising 29,000. Manufacturing payrolls
were up 8,000 and government employment jumped 7,000.
There were hefty gains in retail payrolls, while employment
in the leisure and hospitality sector recorded its largest
increase since August 2012.
The mining sector saw an acceleration in job losses last
month, with payrolls posting their biggest decline since August
2009. It was hurt by a loss of 1,100 jobs tied to oil and gas
extraction, which has taken a hit from lower crude oil prices.
(Reporting by Lucia Mutikani; Editing by Paul Simao)