Higher taxes seen restraining job growth in February

Job growth likely was moderate in February as higher taxes and fears of deep government spending made employers cautious, suggesting there was still not enough momentum in the economy for the Federal Reserve to scale back its monetary support.

Employers are expected to have added 160,000 jobs to their payrolls last month, barely picking up from January's 157,000 count, according to a Reuters survey of economists. That would just be enough to hold the jobless rate steady at 7.9 percent.

A 2 percent payroll tax cut ended and tax rates went up for wealthy Americans on January 1, hurting retail sales. In addition, $85 billion in federal budget cuts, known as the "sequester," started taking hold on March 1, a prospect that may have weighed on hiring decisions.

"Businesses are sitting tight and part of it reflects business caution ahead of the sequester. The underlying trend still points to a job market that is treading water," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania.

The Labor Department will release the February employment report on Friday at 8:30 a.m. (1330 GMT).

Apart from the fiscal drag, a snowstorm that buried the East Coast during the payrolls survey week could also have kept some workers at home. But the blizzard hit during the weekend and missed many large metropolitan areas, which probably softened the blow on the jobs tally.

February's pace would be well below the 200,000 jobs per month average for the last three months, and would reflect an anticipated reversal in retail employment after sales excluding gasoline and automobiles slowed sharply in January.

The weak trend likely persisted in February. According to a Reuters survey, sales at stores open at least a year at 15 chains were up a modest 1.6 percent in February.

Retail employment had increased 32,600 in January, marking a seventh straight month of gains for the sector.

"If there is going to be one sector where there is going to be some pain, it's going to be the retail space. That would be the one thing that holds us below 170,000," said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.


Weak retail hiring was probably offset by construction employment, where double-digit job gains have been reported over the past four months. Construction jobs gains are being driven by an acceleration in the housing market recovery.

Rebuilding on the East Coast after the destruction wrought by Superstorm Sandy in late October is also helping to support employment in the sector.

With employment falling far short of the roughly 250,000 jobs per month over a sustained period that economists say is needed to significantly reduce unemployment, the report will give the Fed ammunition to continue on its very easy monetary policy path.

The U.S. central bank is buying $85 billion in bonds per month and has said it would keep up asset purchases until it sees a substantial improvement in the labor market outlook, a message Fed Chairman Ben Bernanke drove home in congressional testimony last week.

Since the 2007-09 recession ended, the economy has struggled to grow above a 2 percent annual pace. In the fourth quarter, output barely expanded.

"The economy is muddling along. The jobs market is just creating enough jobs to keep the unemployment rate steady," said Sweet. "That's not going to meet the Fed's criteria for a significant improvement in the jobs market."

Away from the retail sector, details of the February report are likely to mirror January's almost broad-based increases, with the private sector accounting for all the job gains.

Within the private service sector, courier and messenger jobs could rebound from the prior month's drop, but could also have been depressed by the bad weather on the East Coast.

Healthcare and social assistance likely recorded another month of solid jobs gains. The same is expected for leisure and hospitality.

Government payrolls are expected to have dropped by about 7,000 last month after falling 9,000 in January. Moderating local government layoffs, outside education, should help to blunt the blow from job losses related to the sequester.

Average hourly earnings are projected to have risen 0.2 percent last month after increasing by the same margin in January. That would be the fourth straight month of gains in hourly earnings.

They increased 2.1 percent in the 12 months through January after a similar advance in December. The length of the average workweek is expected to have held steady at 34.4 hours.

(Editing by Andrea Ricci)