Unemployment Rate Drops, Job Growth 97,000

Washington, DC, March 9, 2007—The economy created the fewest number of jobs in two years, even as the unemployment rate fell back to 4.5%, the Labor Department reported Friday.

Nonfarm payrolls increased by 97,000, trivially lower than the 100,000 expected by economists surveyed by MarketWatch. It was the smallest job gain since January 2005.

Payroll growth in the previous two months was revised higher by a total of 55,000. January's payrolls were revised up to 146,000 from 111,000 previously.

While job growth was relatively weak in February, other aspects of the report pointed toward a tight labor market. The drop in the unemployment rate back to 4.5% from 4.6% was unexpected. The unemployment rate has drifted between 4.4% and 4.6% for the past six months.

Average hourly earnings increased a larger-than-expected 6 cents, or 0.4%, bringing the year-over-year gain to 4.1%. Higher wages could fuel inflation, Fed officials fear.

A blast of cold and wet weather in February after two months of balmy conditions "likely contributed" to job losses in construction, said Philip Rones, deputy commissioner of the Bureau of Labor Statistics, in a statement.

Construction jobs fell by 62,000 in February, including 23,000 in residential construction trades.

The weather may have also contributed to a six-minute decline in the average workweek to 33.7 hours. Total hours worked in the economy fell by 0.3%.

Factory payrolls fell by 14,000, the eighth straight monthly decline. Of 84 manufacturing industries, 42.9% were hiring in February, unchanged from January.

According to the payroll survey of 400,000 business establishments, Private-sector payrolls rose by 58,000, matching the 57,000 estimated by the ADP national employment report on Wednesday. Of 278 industries, 63.5% were hiring in February, the lowest since December 2005.

Service-producing industries added 168,000 jobs, with stronger growth seen in education and health care, professional services, and leisure and hospitality industries.

According to the separate survey of 60,000 households, the labor force fell by 190,000 in February, with 38,000 fewer employed. Unemployment fell by 152,000 to 6.9 million. The labor participation rate fell a tenth to 66.2%.