Better Job Market Not Nearly Good Enough for the Fed

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The job market made back a lot of ground last month. That isn’t the same as saying it is back.

The Labor Department on Friday said that the economy added 379,000 jobs in February—better than the 210,000 economists were looking for—and that January’s jobs gain was revised to up 166,000 from up 49,000. The growth was driven by a jump in restaurant employment, which is impressive considering that the job survey was conducted during a spate of wintry weather that made outdoor eating even harder in much of the country. The unemployment rate for last month slipped to 6.2%, versus economists’ estimates that it would stay even with January’s 6.3%.

Coming before Covid-19 vaccines are generally available, and before the arrival of warm weather makes conducting business outdoors easier, the February jobs numbers are extremely encouraging. Considering the decline in daily Covid-19 cases and the relaxation of restrictions in some places, another month of strong job gains in March seems likely.

Friday’s report gave the Treasury market another round of agita over the possibility that the Federal Reserve might start reducing asset purchases and raising rates sooner than the central bank has indicated. Yields on two-, three- and five-year Treasury notes—which have been particularly sensitive to shifts in Fed-policy expectations—swung sharply higher in early trading before easing up later in the day.

Considering how much ground the job market has to make back, however, it isn’t time to start treating a recovery as a fait accompli. There were 9.5 million fewer jobs last month than there were a year earlier, right before the pandemic struck. And the actual shortfall is about one million jobs larger if population growth is taken into account.

Meanwhile, the unemployment rate is getting flattered by all the jobless Americans who aren’t looking for work during the pandemic, and therefore aren’t counted as being in the labor force. If the labor-force participation rate—the share of the working-age population that is employed or seeking employment—was at its year-earlier level, February’s unemployment would be 9.1%.

Recall, too, that following the last recession, the Federal Reserve didn’t start reducing its asset purchases until January 2014, when employment was nearly back to its pre-crisis levels. And it didn’t raise its target range on overnight rates from near zero for nearly a year after that.

There is reason to hope that the job market will recover faster this time around. As the economy reopens, many people—particularly service-sector workers in places like restaurants and hotels—should be able to return to work. An unleashing of pent-up spending as the country returns to something like normal could generate demand for a lot of workers as well.

But a full reopening of the economy in the months ahead should not, at this point, be taken as a given. With the risk that variants of the novel coronavirus will reduce the effectiveness of current vaccines, and with no vaccine yet approved for children under 16, it seems likely that some degree of caution will remain in place. Moreover, the Fed has concluded that in the past it worried too much about the possibility of the job market overheating before wage gains showed much in the way of heat.

Actual recovery for the job market is still a long way away, and a hawkish turn by the Fed may be longer still.

Federal Reserve Chairman Jerome Powell tells WSJ’s Nick Timiraos there is no plan to raise interest rates until labor-market conditions are consistent with maximum employment and inflation is sustainably at 2%. Photo: Eric Baradat/Agence France-Presse/Getty Images.

Write to Justin Lahart at justin.lahart@wsj.com

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