Soft Jobs Report Undercuts Payrolls, But Leaves Fed Outlook Largely Intact

U.S. nonfarm payrolls fell by 92,000 in February, well below the consensus call for a 60,000 gain and a sharp reversal from January’s 126,000 increase, which was revised down from 130,000, according to the Bureau of Labor Statistics. Revisions to prior months subtracted another 69,000 jobs, largely in December, leaving payrolls negative in two of the past three months. The unemployment rate ticked up to 4.4% from 4.3%.

The weakness was broad-based, with almost all major sectors losing jobs. Health care, a key engine of job growth in recent quarters, saw declines tied in part to strike activity, while employment in information and the federal government continued their downward trends. 

Labor force participation slipped to 62.0% from 62.1% in January and compared with 62.5% a year earlier, suggesting some workers have stepped back from the labor market. Wage growth remained relatively solid, with average hourly earnings up 3.8% over the year—slowly easing but still broadly keeping the typical worker ahead of inflation. 

Despite the modest uptick in the unemployment rate implied by the broader softening in payrolls and participation, the report is unlikely to materially alter the Federal Reserve’s stance. After three rate cuts last year, policymakers have signaled they can afford to move cautiously, and this mix of weaker job creation but still-firm wage gains reinforces the case for patience.  

Ultimately, the path of policy will hinge on the next several months of data and the Fed’s judgment on how quickly the labor market and inflation are converging toward its dual mandate.