US companies added workers at a blistering pace in February, according to the ADP Employment Report. Private payrolls increased 298,000, far above the 183,000 consensus forecast via Econoday.com. The gain is the strongest monthly increase in nearly three years. Today’s update also lifted the year-over-year trend in payrolls for the second straight month. If the bullish data is confirmed in Friday’s official jobs report from Washington, the news will further boost confidence for expecting that the Federal Reserve will raise interest rates at next week’s monetary policy meeting.
“February proved to be an incredibly strong month for employment with increases we have not seen in years,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Gains were driven by a surge in the goods sector, while we also saw the information industry experience a notable increase.”
The February data could be an outlier, of course, but the firmer trend looks genuine. In particular, it’s encouraging to see that the annual pace of growth has picked up in the last two months: Private payrolls increased 1.9% last month vs. the year-earlier level, a five-month high.
It’s premature to conclude that the trend in labor-market growth is accelerating, but it’s clear that last year’s deceleration has at least stabilized. February’s 1.9% annual increase is still near the lower end of the year-over-year pace that’s prevailed in recent history, but it appears that the slowdown in the labor market has ended.
In turn, it’s reasonable to wonder if the latest downgrades in first-quarter GDP growth are overly pessimistic. Yesterday’s estimate via the Atlanta Fed’s GDPNow model called for a sharp slowdown in Q1 output to a 1.3% rate, substantially below the sluggish 1.9% gain reported for last year’s Q4.
What accounts for the recent upswing in jobs creation? “Confidence is playing a large role,” says Mark Zandi, chief economist of Moody’s Analytics, which co-produces the ADP Employment Report. “Businesses are anticipating a lot of good stuff — tax cuts, less regulation. They are hiring more aggressively.”
There’s still a debate about whether the rosy expectations will be matched with hard data in terms of a stronger macro trend overall. Based on today’s report, however, the scales tipped a bit more in favor of a bull’s eye view of the future.