What happened: Total nonfarm payroll employment added 311,000 net jobs in February. The unemployment rate increased to 3.6% from 3.4%. Wage pressures moderated slightly with monthly growth in hourly earnings easing to 0.2% from 0.3% in January.

What it means: Although employment rose above consensus expectations of 225,000, February’s increase is lower than the average monthly gain of 343,000 over the prior 6 months.  Cooling demand coupled with a small uptick in supply resulted in wage growth edging down from the previous month.

What Zillow Senior Economist Orphe Divounguy thinks: A less tight labor market and slowing wage growth after the stronger-than-expected January report is likely to pull down longer-term yields – including mortgage rates. Investors and the Fed will likely see this as a sign that demand is cooling and that disinflation is still underway. This is because labor market tightness – the ratio of job vacancies to the number of unemployed workers – has implications for the inflation outlook. And, rent inflation tends to respond more to a tight labor market than do other components of the Consumer Price Index (CPI). Rent is 40% of core CPI. One source of concern remains the strength of the services sector with labor shortages in a leisure and hospitality sector that remains 410,000 jobs below its pre-pandemic level.

While it’s unlikely mortgage rates will fall in a meaningful way off the back of this news, any small sign of progress is welcome after last month’s disappointing inflation news and hawkish comments from Fed Chair Jerome Powell sent rates back up above 7%. When mortgage rates fell in January, housing sales ticked up slightly above normal for that time of the year. Home buyers are stretched thin when it comes to affordability and even a small improvement would support housing market activity this spring.

Numbers to know: 

• In February, nonfarm employment increased by 311,000 jobs. Annual employment growth slowed to 2.9% from 3.3% last month.
• The unemployment rate rose to 3.6% from 3.4%.
• Despite adding 105,000 net jobs in February – more than its 91,000 monthly job average over the prior 6 months – employment in leisure and hospitality is below its pre-pandemic February 2020 level by 410,000 or 2.4 %.
• Construction employment added a more modest 24,000 jobs.
• The average workweek for all employees on private nonfarm payrolls fell slightly to 34.5 hours from 34.6 hours.
• Average hourly earnings increased 0.2% in February. Average hourly earnings are up 4.6% year over year.