Rosy US Job Figures Could Spur Rate Hike

Wall Street stocks have dropped slightly as investors took a rosy jobs report from the US Labor Department as an indication that the Fed may raise interest rates sooner than originally anticipated.

The US economy added 295,000 jobs in February in a strong showign that sent unemployment down to 5.5 percent, the Labor Department reported Friday.



The figures were "more evidence that the labor market is recovering rapidly, with employment growth more than strong enough to keep the unemployment rate trending down," said Jim O'Sullivan, a chief economist at High Frequency Economics.



Stocks dipped slightly after the report was released, reacting to investors' concerns that the positive labor data would make the Federal Reserve more likely to raise interest rates from their extremely low levels.



The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite Index all lost ground in early trading on Friday, albeit only by a fraction of a percent.



A symbolic change



At 5.5 percent, the unemployment rate has reached the level at which the Fed previously said it would consider tightening its monetary policy.



"This is quite a symbolic change that increases the pressure on the Fed to hike rates in June," said economist Paul Dales of Capital Economics.



Mike Zandi, chief economist at Moody's Analytics, expects GDP in the world's largest economy to grow by 3 percent this year – a rate not seen in a decade. That pace of expansion is enough to support adding about 250,000 jobs each month, he said.



More jobs, flat wages



O'Sullivan said that falling unemployment "makes more acceleration in wages increasingly likely," although February's robust gain in total employment weren't matched by wage gains.



Average hourly wages rose just 3 cents to $24.78 per hour (22.74 euros). Average hourly pay has risen 2 percent over the past 12 months. Over the same time period, 3.3 million additional jobs were added to the economy.



nz/cjc (AP, AFP)