NEW YORK (Reuters) - U.S. jobs increased more than expected in February amid falling new COVID-19 cases, quickening vaccination rates and additional pandemic relief money from the government, putting the labor market recovery back on firmer footing and on course for further gains in the months ahead. Nonfarm payrolls surged 379,000 jobs last month after rising 166,000 in January, the Labor Department said on Friday. In December, payrolls fell for the first time in eight months. Economists polled by Reuters had forecast February payrolls increasing by 182,000 jobs. Though the unemployment rate fell to 6.2% last month from 6.3% in January, it continues to be understated by people misclassifying themselves as being “employed but absent from work.” MARKET REACTION: STOCKS: The S&P 500 was 1.03% higher after the open BONDS: Yields on benchmark 10-year notes rose above 1.62% for the first time in a year, and were last at 1.5940%. Two-year Treasury yields rose to 0.1507% FOREX: The dollar index was up 0.32% COMMENTS: AMBROSE CROFTON, GLOBAL MARKET STRATEGIST, J.P. MORGAN ASSET MANAGEMENT, LONDON “While today’s US jobs report was better than expected, it also reminds us that there is still a long runway for the economic recovery to take-off in the coming quarters. While 12.9m of the 22.4m jobs lost from the pandemic have been recovered, that still leaves employment 6% below its pre-pandemic peak. With employment in the hospitality and leisure industry still 3.5m lower than a year ago, the jobs recovery may be quicker than in the past, once the vaccines allow for a strong rebound in that sector. “It’s no wonder that the Treasury market’s confidence in the recovery has been growing, leading to yields moving sharply higher: the vaccine rollout is proceeding well, the US consumer has accumulated excess savings of 8% of GDP in 2020 and there is a proposed stimulus of $1.9tn (9% of GDP) in the pipeline. This can fuel the economic recovery for many quarters to come and rapidly accelerate job gains. “But you can have too much of a good thing and the sharp move higher in Treasury yields has recently caused some indigestion in the equity markets that had previously been buoyed by low interest rates. However, investors should take comfort from Chair Powell’s hints yesterday – should markets become disorderly, then action would be taken to maintain favourable financial conditions and keep the economy on the path to full employment.” JUSTIN HOOGENDOORN, MANAGING DIRECTOR OF FIXED INCOME, PIPER SANDLER FINANCIAL STRATEGIES, CHICAGO “As the economy reopens, we are beginning to see significant legs to the reflation story. This strong NFP bolsters the story, which is pressing the Fed to move up the timeline for rate hikes. I am not sure that the Fed is going to be pressing rates higher anytime soon, but the thought certainly is pressuring the belly of the curve. I believe that the Fed will begin to taper its balance sheet growth in the near future to take some upward pressure off of rates. The 49 bp of curve roll down for investors over the next two years from the 5-year to the 3-year is going to be tempting for investors, as it matches the highest pickup over the past five years. “ STEVE RICK, CHIEF ECONOMIST, CUNA MUTUAL GROUP, MADISON, WISCONSIN (email) “While it is a hopeful sign that these jobs numbers topped expectations, we still have a ways to go before we start to see real, upward economic momentum for Main Street here. Progression on the vaccine front is a real source of optimism, but ultimately, I think it could take over two years to return to pre-COVID labor market conditions.” RYAN SWIFT, U.S. BOND STRATEGIST, BCA RESEARCH, MONTREAL “It’s definitely bond-bearish in the very near-term. However, the rates market is now priced for Fed liftoff near the end of 2022. Employment growth will have to be even stronger going forward – at least +400k to +500k per month – in order for the Fed to hit its “maximum employment” goal by then, justifying current market pricing. PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK “I was surprised. It’s just a number that’s reflecting that the economy is beginning to open up due to the vaccine. “The key is there’s no rate inflation in sight. ADVERTISEMENT “This poses the question: do we really need a stimulus package? You still have 10 million out of work and those people need assistance. Could there be a last-minute adjustment to this package? That’s a possibility. But they’ve got to be careful they could overheat the economy. The Fed said inflation could be temporary but there’s a possibility what the Fed’s saying could be challenged. And that’s what the bond market is telling us. “This is good news for Main Street but not necessarily for Wall Street. It means that we might see yields spike a little higher than anticipated. If these rates spike to a 52-week high, there’s a possibility that this relief rally that we’re seeing now is going to be challenged.” JOSEPH LAVORGNA, AMERICAS CHIEF ECONOMIST, NATIXIS, NEW YORK “It’s an unusual report because job gains were predominantly in leisure and hospitality, it’s up 355,000. “What’s really interesting is the diffusion index which measures job breadth was only 57%. Normally with what would appear to be a blowout number like 465,000, you would get 65%-70% industry hiring. So, essentially it’s a very narrow gain. “It’s not a weak report but it’s not anywhere as near as strong as the headline. We’re happy that the leisure and hospitality businesses are hiring, hopefully that’s vaccine and reopening related, but there’s still a lot of wood to chop. “It’s an unusual number in the sense you got what appears to be a blowout number, but it is really narrowly concentrated in leisure and hospitality.” TIM GHRISKEY, CHIEF INVESTMENT STRATEGIST, INVERNESS COUNSEL, NEW YORK “It’s a big number. Totally unexpected. Obviously, the reopening is progressing quicker than we thought. This is a significant jump in hiring versus the consensus expectations, and from the month of January, which was very low. “There is significant hiring going on, primarily by private companies. It shows the reopening is on track and occurring faster than we thought. We hope virus protocols are being adhered to in this process. We don’t want another outbreak. “It shows the economy is reopening and that benefits economically sensitive sectors and securities. The reopening plays are not tech stocks, generally, they’re the companies that are most exposed to increase in business as the economic reopening continues. The Nasdaq came very close to confirming a correction during this period of profit taking since mid-February, pivoting to the reopening stocks that have done well on a relative basis. “Stimulus is going to proceed anyway. The consensus is that stimulus is necessary to kickstart the economy and to strengthen the recovery.” JJ KINAHAN, CHIEF MARKET STRATEGIST, TD AMERITRADE, CHICAGO “It’s so funny because it seemed like about three weeks ago everyone in the world suddenly thought we could have inflation. Ever since then the drumbeat has been playing and certainly when you see this kind of employment situation, you see January get revised higher, those who have inflation fears, this is a little bit of an arrow in their quiver, if you will. “Still, during this reopening time I am still a little hesitant on the jobs reports. Today’s is a perfect example – you see this month that education jobs were lost pretty significantly across the country, last month almost the same amount of education jobs were gained across the country – so it’s really tough to figure out as the states open differently what is actually going on. That all said, the trend is positive. On top of a lot of the other good news we are getting, on top of the fact it does look like we are closer to a stimulus plan, a lot of money continuing to slosh around in the economy does give some credence to these inflation fears.” JAMES MCDONALD, CEO AND CHIEF INVESTMENT OFFICER, HERCULES INVESTMENTS, LOS ANGELES (emailed) “While Friday’s jobs report showed signs of strength in the labor market in February, there are still millions of people unemployed and the labor market is nowhere near pre-pandemic levels. Even with trillions of dollars of monetary and fiscal stimulus, it’s going to take time to completely correct the Covid-19-driven unemployment crisis.”“Even though the jobs report is a lagging indicator, it gives us a window into the health of small businesses, which are only going to hire more employees if they feel confident about the state of the economy. The better-than-expected jobs report suggests a healthy economic rebound in progress and will likely add upward pressure on bond yields, as the bond market prices in a stronger economy, which may result in more consumer spending and eventually more inflation.” “The biggest risk to the stock market is if the Federal Reserve loses control of bond yields … inflation will continue to exert upward pressure on yields going forward and into the summer months.”