The U.S. economy added a modest 97,000 jobs in February, the smallest gain in two years, but job growth in prior months was stronger than first thought and the unemployment rate dropped, the government said on Friday, easing fears over economic weakness.
Adding to a picture of economic resilience, the U.S. trade deficit narrowed slightly more than expected in January to $59.1 billion as U.S. exports hit a record high, a separate report showed.
The Labor Department's payrolls report showed substantial revisions to employment in January and December boosted payrolls by 55,000 more jobs than previously reported.
Unemployment Rate Edges Down
Also, the unemployment rate edged down to 4.5% from 4.6%, helping allay mounting concern that softening was spreading beyond the struggling manufacturing and housing sectors.
Analysts, on average, were expecting the economy to add 100,000 jobs outside of the farming sector in February and for the jobless rate to hold steady at 4.6%.
February's payrolls rise was nevertheless the smallest monthly rise since a gain of 95,000 in January 2005, the Labor Department said.
However, the Labor Department revised job gains up to 146,000 in January and to 226,000 in December.
"It's certainly better than the market's worst fears and stronger than the whisper numbers before hand. It's certainly helpful for risk appetite and that's what the markets are taking their cue from," said Alan Ruskin, chief international strategist for RBS Greenwich in Greenwich, Connecticut.
Investors have been concerned that a soft patch in recent economic data coupled with increasing trouble in the subprime mortgage market could weaken the economy, and derail the so-called Goldilocks scenario, where growth is neither too hot or too cold.
"It's very hard to show that to be the evidence in today's jobs report," Steve Goldman, a market strategist at Weeden & Co., told Reuters. "The economy is still hanging in there, standing tough and the market likes that."
However, Mark Zandi, chief economist and co-founder of Moody’s Economy.com, told CNBC’s “Squawk Box” that February’s jobs report is encouraging, but it’s too early to say that the economy has come in for a soft landing.
“It’s too early to declare victory,” Zandi said. “The economy is performing well, but this housing correction is not over.”
Construction employment fell by 62,000 in February, probably prompted by cold and stormy weather in much of the country, the government said. Manufacturing employment shed 14,000 positions.
Health care, which accounted for one in six jobs added to U.S. payrolls in the last 12 months, added 33,000 jobs in February, the government said.
Wages Grew Briskly
Average hourly earnings rose by 6 cents, or 0.4%, in February. Analysts were expecting earnings to rise by 0.3%. Over the 12 months ending in February, wages grew by 4.1%.
Strong wage growth is welcome by workers and supports consumer spending, a key ingredient to the country's economic health. But a rapid pickup -- if sustained and not blunted by other economic forces -- can raise fears about inflation.
Spiraling inflation would whittle away any wage gains, hurting workers' wallets, and isn't good for the overall economy, either.
The Federal Reserve, which had steadily boosted interest rates for two years to fend off inflation, has left rates alone since August. The Fed -- which said it will keep a close eye on inflation -- meets later this month to consider interest rate policy.
The new employment figures come as President Bush continues to get lukewarm ratings for his economic stewardship. Just 41% of the public approves of the president's handling of the economy, compared with 57% who disapprove, according to an AP-Ipsos poll.
Democrats, who accuse Bush of not doing enough to close the gap on economic inequality, say a top priority is getting final agreement in Congress on legislation to boost the federal minimum wage from $5.15 an hour to $7.25 an hour. The wage hasn't budged for nearly 10 years. Democrats also are pushing legislation making it easier for workers to start unions against company wishes.
Trade Deficit Narrows Slightly
Separately, the U.S. trade deficit narrowed slightly more than expected in January to $59.1 billion, as U.S. exports rose to a new record and imports declined, a Commerce Department report showed on Friday.
The monthly trade gap shrank 3.8% from December and was less than the median forecast of $59.7 billion made by Wall Street analysts surveyed before the report.