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Private payrolls rose by 475,000 in February, topping expectations: ADP

U.S. private-sector employers brought back more jobs than expected in February as virus-related disruptions receded following the Omicron variants spread.

Private payrolls rose by 475,000 in February compared to January, ADP said Wednesday. Economists were looking for payrolls to grow by 375,000, according to Bloomberg consensus data.

February's report also came alongside a sharp upward revision to January's payrolls. In January, private sector employment rose by 509,000, ADP said in its revised monthly print. Previously, ADP reported January payrolls fell by 301,000, which would have been the first drop since December 2020.

By sector, leisure and hospitality saw by far the most payrolls come back in February at 170,000, contributing heavily to the overall 417,000 increase in private services payrolls last month. Trade, transportation and utilities companies added back a combined 98,000 jobs during the month, while professional and business services added back 72,000.

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In the goods-producing sector, each of mining, construction and manufacturing employers also added back jobs on net in February. Manufacturing jobs rose by 30,000, while construction positions followed close behind with a gain of 26,000.

While February's labor market data will likely capture some residual impact from the record surge in Omicron variant cases in the U.S. in January, disruptions to the demand side of the labor market have started to attenuate as new cases have come down and consumers began going back out. However, employers remain in stiff competition for talent, with demand for workers elevated as the labor force participation rate holds below pre-pandemic levels.

"High inflation expectations and an extremely tight labor market — which shows the widest gap between available jobs and workers in postwar U.S. history — is generating wage growth at a pace well above that compatible with 2% inflation," Goldman Sachs chief economist Jan Hatzius wrote in a note this week. Average hourly wages grew at a 5.7% annual rate in the U.S. in January, according to Labor Department data.

NEW YORK, NEW YORK - AUGUST 13: A restaurant worker wears a protective face mask and gloves in midtown as the city continues Phase 4 of re-opening following restrictions imposed to slow the spread of coronavirus on August 13, 2020 in New York City. The fourth phase allows outdoor arts and entertainment, sporting events without fans and media production. (Photo by Noam Galai/Getty Images)

Together with persistently elevated demand for goods and services among consumers and ongoing supply chain disruptions, "these forces threaten to ignite a moderate wage-price spiral," Hatzius added.

And with this in mind, a key question for economists has centered on whether participation in the labor force will return to pre-pandemic trends, especially as many have left the labor market permanently due to child care needs, shifting priorities around work-life balance, and the ability to go into retirement following a run-up in asset prices over the course of 2020 and 2021. Payrolls have been on a mostly upward trend since May 2020 — as tracked both by ADP's monthly payrolls reports and in the Labor Department's monthly jobs reports — helping to fill some of the deficit in labor supply initially generated by the pandemic.

While many economists expect shortages to persist in the near-term, some have struck an upbeat tone on the outlook for the rest of 2022.

"Total non-farm payrolls have recovered 87% of the losses incurred during the pandemic, and we expect continued strong gains in February," Sam Bullard, senior economist at Wells Fargo, wrote in a note. "We project that U.S. employment will recover to its pre-pandemic level by year-end, giving the Fed plenty of cover to tighten monetary policy at a steady pace this year as the central bank fights above-target inflation."

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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