US Job Creation Surges as Rate Falls to 7.7%

A sign advertising jobs is posted in the window of a Jack in the Box restaurant.
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A sign advertising jobs is posted in the window of a Jack in the Box restaurant.

Job creation broke out in February, with the economy creating a net 236,000 new jobs as the unemployment rate fell to 7.7 percent.

Private job creation stood at a robust 246,000, finally indicating that the economy may be ready to escape the tight growth range in which it has been held since the financial crisis.

Service industries led the gains with 73,000 new jobs, while construction added 48,000 and health care provided 32,000. Retail also added 24,000.

A separate unemployment measure that includes workers no longer looking for jobs and those working part-time for economic reasons edged lower to 14.3 percent. At the same time, the labor force participation rate, which measures workers and those looking for jobs, also fell, to a 32-year low of 63.5 percent, tied with where it stood in August 2012.

"While on the one hand the pace of job creation is likely to sufficiently justify investors' recent exuberance for driving equity prices higher, the decline in the participation rate and worsening situation for the longer term unemployed reminds us of the challenges facing the labor market," said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York.

The gain in job creation, as reported by the Labor Department, comes as Washington continues to debate mandatory spending cuts that took place at the beginning of March, lending to worry that the rise may not last.

"The big question was whether this much job creation can be sustained. The answer is now complicated by the budget cuts under the sequester," said Kathy Bostjancic, director of macroeconomic analysis at The Conference Board. "What is clear however, is that the labor market was gaining traction before the sequester."

Economists expected the 160,000 new jobs in February and the unemployment rate held steady at 7.9 percent.

However, there was anticipation that the number could come in a bit better than expected after ADP reported earlier this week that the private sector created 198,000 for the month.

Stock marketreaction, though initially positive, was muted.

Stocks were mixed in early trading, while treasury yields rose to an 11-month high, with the benchmark 10-year note yielding 2.07 percent

"Employers are following the historical trend of doing the bulk of their hiring in the first quarter; and the February numbers and January revisions support this fact," said Todd Schoenberger, managing partner at LandColt Capital in New York. "Traders will certainly cheer this data as the Dow should continue its trend of daily record-setting performances."

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Average hourly earnings rose four cents to $23.82 an hour, while the average work week edged higher to 34.5 hours.

A large chunk of the jobs gains came through the birth-death model the Bureau of Labor Statistics uses to gauge the activity of newly created and lost businesses. That number came in at 102,000.

Investors watch the nonfarm payrolls number closely both to gauge general economic health and to discern future Federal Reserve policy moves.

The central bank has kept interest rates near zero for the past four years and is buying $85 billion in Treasurys and mortgage-backed securities each month in an effort to stimulate growth.

Fed officials have said the rate policy will continue at least until unemployment drops to 6.5 percent and inflation rises to 2.5 percent. However, the bond buying, known as quantitative easing, likely will stop well ahead of that if the Fed sees sustained growth signals.

One caveat for the report was a downward revision in January, from an initially reported 157,000 down to 119,000. December's numbers, though, were revised up from 196,000 to 219,000.

Long-term unemployment remained a problem as well, with the average duration of joblessness accelerating to 36.9 weeks after a sharp drop in January to 35.3 weeks.

—By CNBC's Jeff Cox. Follow him on Twitter at @JeffCoxCNBCcom.