U.S. Added 678,000 Jobs in February

But the labor market is suddenly facing new threats that could impede further job growth: soaring oil prices, geopolitical turmoil in Europe and looming rate increases from the Federal Reserve.

While virus infections have fallen sharply since their peak in mid-January, employers say they continue to struggle to find workers as they respond to a high level of spending from households. Though some workers have come off the sidelines in recent months, the labor force remains depleted, with many older workers having retired, immigration down sharply and some younger and middle-age workers remaining at home.

With the supply of workers still constrained, the labor market could be approaching—or perhaps is at or beyond—the level of employment that can persist without stoking stronger inflation.

Inflation-adjusted gross domestic product eclipsed pre-pandemic levels last summer, but employment hasn’t fully recovered. Employers are hiring but not as quickly as they desire. A short supply of labor and rising wages are two of several factors contributing to inflation increasing at the fastest rate in four decades.

Friday’s report offers a snapshot of the labor market in mid-February, when the government surveyed households and businesses to produce the latest employment figures. That timing means the numbers don’t show what effect, if any, Russia’s late-February invasion of Ukraine and the subsequent run-up in oil prices have had on the labor market.

The Omicron variant of Covid-19 may have held back hiring over the winter as workers stayed home sick and states and cities put in place rules on vaccinations, masks and in-store capacity to prevent the spread. Job growth remained strong, nonetheless, in part because employers have rapidly raised wages to lure adults back into the labor market. Some workers returned to the labor market in recent months, pushing up labor-force participation closer to pre-pandemic levels.

Garn Development desperately wants to hire housekeepers and other staff members to run its 20 hotels in Utah and several other western states. Bookings across the family-owned company’s hotels rose roughly 60% last year from 2020 and continue to pick up this year, said operations manager Gabe Garn.

But despite raising wages an average 20% over the past year, the company is still short of workers, forcing hotel managers to clean rooms, serve food and do other tasks normally reserved for lower-paid employees, Mr. Garn said. A large number of workers of late have quit shortly after being hired, he said.

“Almost the second you don’t get the schedule you want, you just leave and go find something else because everywhere is hiring,” Mr. Garn said. “Now when we interview, it’s almost like we’re selling ourselves versus how the employee sells themselves to us. Now you’ve got to convince them you’re worthy of them versus the opposite.”

The labor market poses a dilemma for the Fed. With inflation at 7.5% in February—far above the central bank’s target of 2%—the Fed plans to raise interest rates multiple times this year to prevent the economy from overheating. But policy makers want to do so at a modest enough pace that would enable job growth to continue.

The unemployment rate hit a post-World War II high of 14.7% in April 2020. Since then, and particularly over the past six months, it has come down sharply, fast approaching the pre-pandemic level of 3.5%, which was a 50-year low. The Fed in December projected that unemployment in the long run will settle at 4%.

Fed Chairman Jerome Powell told a U.S. House committee this week that he would propose a quarter-percentage point interest-rate increase at the central bank’s meeting in mid-March.

Other figures show a tightening jobs market that could further push the Fed. Employers are laying off historically few workers each week, leading to a big drop in Americans seeking first-time unemployment benefits from state unemployment offices. That figure fell by 18,000 last week to 215,000, near the lowest level on records dating back to 1967, the Labor Department said Thursday.

The share of workers quitting jobs remains near the highest on record dating back to late 2000, as does the number of job openings.

Three shifts could lead to stronger job growth this spring, economists say. The first is the continuing decline in virus cases. The second is the move by some states and cities in recent days like Washington, D.C.; New York; California; and Hawaii to lift rules that required customers to be vaccinated and wear masks. The third is a potential decline in household savings, which could pressure people to rejoin the labor market to collect a paycheck, particularly as inflation rises and the stock market wobbles.

Write to Josh Mitchell at [email protected]