Payrolls increased more than forecast in February and thejobless rate unexpectedly fell to a five-year low of 7.7 percent, asign U.S. employers were undaunted by the budget impasse inWashington.

Employment rose 236,000 last month after a revised 119,000 gainin January that was smaller than first estimated, Labor Departmentfigures showed today in Washington. The median forecast of 90economists surveyed by Bloomberg projected an advance of 165,000.The jobless rate dropped from 7.9 percent. Hiring in constructionjumped by the most in almost six years.

Automakers and home-improvement retailers are among thoseannouncing plans to take on more staff, which will lead to gains inincomes that may help the world's biggest economy weather federalcutbacks and higher taxes. Today's data may ratchet up debate amongFederal Reserve policy makers, who are looking for “substantial”progress in the labor market to determine whether to maintainrecord stimulus.

“There's a lot of dry tinder in the economy,” Robert Dye, chiefeconomist at Comerica Inc. in Dallas, said before the report. “Ifcompanies are experiencing growth in orders, they're going to beable to look past these broader fiscal concerns. We're still goingto need to see ongoing solid gains in employment and steady dropsin unemployment before the Fed eases off the gas pedal.”

Stock-index futures maintained gains after the figures. Thecontract on the Standard & Poor's 500 Index expiring in Marchrose 0.5 percent to 1,545 at 8:39 a.m. in New York. Treasuriesdeclined, pushing up the yield on the benchmark 10-year note to2.07 percent from 2 percent late yesterday.

Employers also boosted hours worked, and earnings picked up forAmerican workers.

Payroll projections ranged from gains of 121,000 to 260,000following an initially reported 157,000 increase in January,according to the Bloomberg survey.

Revisions to the prior two months' reports subtracted a total of15,000 jobs to the employment count in December and January.

Private payrolls, which don't include jobs at governmentagencies, rose by 246,000 in February after a revised gain of140,000 the previous month. Economists forecast they would grow170,000 following an initially reported 166,000 gain inJanuary.

Jobless Rate

The unemployment rate, derived from a separate survey ofhouseholds, was forecast to hold at 7.9 percent, according to theBloomberg survey median. The decline reflected both a gain inemployment and an increase in people leaving the labor force.

The participation rate, which indicates the share of working-agepeople in the labor force, dropped to 63.5 percent, matching thelowest since September 1981, from 63.6 percent.

Today's report showed factories added 14,000 workers inFebruary, compared with a projected 9,000 advance and following a12,000 increase in the previous month.

Auto manufacturing, reflecting car and truck sales running closeto the best pace in five years, may lead to more factory hiring incoming months. Chrysler Group LLC, the automaker majority owned byFiat SpA, will invest about $374 million and add 1,250 positions atIndiana factories to boost output of eight- and nine-speedtransmissions. Chief Executive Officer Sergio Marchionne disclosedthe investment in February.

Employment at private service-providers jumped 179,000 lastmonth, today's report showed. Construction companies added 48,000workers, reflecting a 17,100 gain in payrolls at residential tradecontractors. Retailers took on 23,700 employees.

A recovery in house prices and a need to increase the supply ofhomes for sale has stirred construction activity and benefitedhome-improvement retailers.

Home Depot Inc. said last month it plans to add more than 80,000temporary employees ahead of its busiest season, about 14 percentmore than a year ago, as the rebound spurs spending on remodelingand landscaping. Lowe's Cos. said in January it would take on45,000 seasonal workers, 13 percent more than a year earlier, andadd 9,000 permanent employees.

Government payrolls decreased by 10,000 last month. Payrolls atgovernment agencies and the companies they contract will be furthertested in 2013. At the start of the month, Congress let $85 billionin across-the-board budget cuts, known as sequestration, proceedbecause it couldn't compromise on deficit reduction.

Government Spending

The reductions in the rate of spending will trim growth by 0.5percentage point this year and wipe out 350,000 jobs if they remainin place through December, according to the median forecast of 26economists surveyed by Bloomberg on Feb. 25. Earlier this year,lawmakers also allowed the payroll tax funding Social Securitybenefits to revert to 6.2 percent from 4.2 percent, crimpinghousehold earnings.

Deloitte LLP is among companies looking past the cutbacks. Thefirm will boost its staff by 18,000 this year, Chief ExecutiveOfficer Joe Echevarria said during a Feb. 27 interview on“Bloomberg Surveillance.” The accounting firm is hiring to supportlong-term growth even with the political uncertainty fromWashington, he said.

A steadily improving labor market has enhanced the job- findingprospects of college seniors, who are now searching forpost-graduation employment. Most of those on track to graduate fromthe Georgia Institute of Technology in Atlanta have job offers twomonths before May, when they leave, said Jasmine Lawrence, 21, acomputer science major who has been hired by Microsoft Corp., whereshe had an internship last summer.

“It is a great time for engineers right now,” saidLawrence, who said she had four offers, including one from GoogleInc. and Gulfstream Aerospace Corp. “Lots of companies want to hiretech students.”

“The pay is fantastic,” Lawrence said, adding that she likes thecareer challenge of working with a team on the Xbox video-gameconsoles. “My friends will all at least be making $60,000 if notgoing to grad schools.” The outlook for graduates is “veryoptimistic.”

The nation's central bank is not yet satisfied with the U.S.jobs recovery, and today's figures showed that part of the drop injoblessness was tied to people leaving the labor force.

Fed officials have said they will keep their benchmark lendingrate near zero as long as unemployment remains above 6.5 percentand inflation is projected to be no more than 2.5 percent. Theyalso said during a January meeting they would keep buying $40billion per month in mortgage bonds and $45 billion inTreasuries.

“Consistent with the moderate pace of economic growth,conditions in the labor market have been improving gradually,” FedChairman Ben S. Bernanke told lawmakers last week during hissemiannual testimony on monetary policy. Central bank officialsstill want to see “substantial improvement in the outlook for thelabor,” he said.

Bloomberg News

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