WASHINGTON — U.S. employers stepped up hiring in February and the jobless rate fell to a more than 6½-year low of 5.5 percent, which could put pressure on the Federal Reserve to raise interest rates in June.
Nonfarm payrolls increased 295,000 last month after rising 239,000 in January, the Labor Department said Friday. The broad job gains came despite disruptive weather conditions that took hold across large parts of the country in mid-February.
The decline in the unemployment rate from 5.7 percent in January took it to its lowest level since May 2008 and into territory that some Fed officials consider consistent with full employment.
“The labor market is on a roll. This should ease fears at the Fed that the global downturn and sharp drop in oil prices are materially disrupting the U.S. economic outlook, and keep the Fed firmly on course for a June lift-off,” said Scott Anderson, chief economist at Bank of the West in San Francisco.
The decline in the unemployment rate, however, largely reflected people dropping out of the labor force.
But economists, who had expected payrolls to rise only 240,000 and the unemployment rate to fall to 5.6 percent, noted that other indicators monitored by the U.S. central bank showed a rapidly tightening labor market.
February marked the 12th straight month that employment gains have been above 200,000, the longest such run since 1994.
The dollar rallied to a fresh 11½-year high against a basket of currencies as traders brought forward bets on when the Fed would raise rates. However, futures markets continued to point to a first rate hike in September.
U.S. stocks and government bond prices fell.
Average hourly earnings rose by three cents last month, leaving the year-on-year gain at 2 percent. That compared to a 2.2 percent rise seen in the 12 months through January.
While economists acknowledged that persistently sluggish wage growth and very benign inflation argued against the Fed pulling the trigger in June, they said tightening conditions in the labor market could force the central bank’s hand.
“Even if the Fed decides to delay the lift-off in policy, it is hard to see the downward trend in unemployment not continuing,” said Jeremy Lawson, chief economist at Standard Life Investments in Edinburgh, Scotland.
“Will the Fed really want short-term interest rates to be negative when the unemployment rate falls below 5 percent late this year or early next year?”
Fed officials are monitoring pay closely to help determine when enough pressure has built in the jobs market to merit higher borrowing costs to keep the economy from overheating.
The central bank has kept its key overnight lending rate near zero since December 2008.
Wage growth could get a lift from an announcement last month by Walmart Stores (WMT), the world’s largest retailer, that it would spend more than $1 billion this year to increase pay for about 40 percent of its U.S. workforce.
Other companies including TJX Cos. (TJX) and health insurer Aetna (AET) also have announced wage increases.
The closely followed employment report was released a little more than a week before the Fed’s March 17-18 policy meeting. Many economists expect the central bank could signal its openness to a June rate hike by dropping a pledge to be “patient” in considering such a move.
“It is most likely they will drop ‘patience’ in March,” said Samuel Coffin, an economist at UBS (UBS) in Stamford, Connecticut.
February’s sturdy jobs report reinforces the view that a recent cooling in economic growth reflects temporary factors, such as harsh winter weather and a now-settled labor dispute at West Coast ports.
That dispute weighed on exports and import growth in January, resulting in the trade deficit narrowing by $3.8 billion to $41.8 billion, a separate report from the Commerce Department showed.
While the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, fell 0.1 percentage point to 62.8 percent last month, other measures on the Fed’s so-called dashboard improved.
A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to its lowest level since September 2008.
The number of Americans unemployed for 27 weeks or longer also dropped to its lowest level since January 2009.
Overall, private payrolls increased 288,000 last month, with construction employment rising 29,000. Manufacturing payrolls were up 8,000 and government employment jumped 7,000.
There were hefty gains in retail payrolls, while employment in the leisure and hospitality sector recorded its largest gain since August 2012.
The mining sector saw an acceleration in job losses last month, with payrolls posting their biggest decline since August 2009. It was hurt by a loss of 1,100 jobs tied to oil and gas extraction, which has taken a hit from lower crude-oil prices.