by Rob Lever
WASHINGTON - The US economy showed signs of revving higher in February, generating 262,000 new jobs, the Labor Department said Friday in a report suggesting a self-sustaining but still-modest expansion.
The report on job growth, a key to maintaining economic growth, was much better than the 225,000 new jobs predicted, on average, by private economists.
But a separate survey in the report showed the jobless rate increased to 5.4 percent from 5.2 percent. The apparent contradiction is explained by an increase in the number of active job seekers in the labor market.
Payrolls have increased an average of 183,000 in the past three months. The agency revised the January report to show payroll growth of 132,000 instead of 146,00, and the December report to 155,000 from 148,000.
Analysts said the report was solid but must be taken in context with relatively lackluster job growth in recent months.
"It was a very good number but you have to look at the trend of 183,000 per month," said Scott Brown, chief economist at Raymond James and Associates.
Brown said the report was "not as bad as feared" for the bond market, because it means a moderate pace of expansion that will allow the Federal Reserve to stay on its path of gradual interest rate increases.
The report suggest a "self-sustaining" pace of expansion, Brown said, but added "there is still a lot of slack in the labor market," evidenced by the shift in the number of job market entrants.
"It's a good report but it's not great," added Ed Keon at Wachovia Securities.
"The good news is that the economy is still on a decent track -- not spectacular, but good steady growth. It also suggests the rise in wages and labor costs that we have been expecting, given the high profit margins really hasn't gotten underway yet."
John Lonski at Moodys Investors Service said the increase in the unemployment rate should not be a source of concern.
"You could make the argument that the rise was actually in response to an improved perception of labor market conditions," he said. "I don't think that was the least bit troubling."
Analysts said it was too soon to say the trend was accelerating, and noted that the lack of wage growth or hours worked suggest some softness in the labor market.
"The job gains will likely fade back toward 200,000 next month," said Joel Naroff at Naroff Economic Advisors.
"I am concerned about wage growth. If it does not pick up, consumer demand could soften."
The report also showed average hourly earnings were unchanged at 15.90 dollars, while the average work week was steady at 33.7 hours.
Manufacturing industries added 20,000 new jobs in February, with much of the gain coming from auto workers returning from temporary layoffs, the government said.
Construction industries added 30,000 jobs. Service producing jobs grew by 207,000, with the bulk of the new jobs coming in professional and business services.
The report should give more confidence to Federal Reserve officials that the economy is on a self-sustaining expansion. But the softness in some areas of the report may keep the central bank from moving too quickly on rates.
"Overall, there is nothing here to warrant the Fed having to tighten aggressively," said economist David Rosenberg at Merrill Lynch.
"The numbers beneath the surface were less stellar than the headline ... the labor force participation rate did not budge one iota at 65.8 percent (a 16-1/2-year low) and the 'employment rate' (employment/population ratio), one of the best measures of labor market slack, fell back to 62.3 percent -- near a 12-year low."
03/04/2005 22:10 GMT