February Payrolls: Positive but Weak — Evening Brief – 03.07.25
The February U.S. nonfarm payrolls report presented a mixed but largely weak picture of the U.S. labor market. The modest job growth in sectors like residential construction and goods production is a positive sign, but it’s insufficient to offset the increases in unemployment, underemployment, and discouraged workers. The declines in labor force participation and the employment-to-population ratio further underscore a cooling economy.
Hours worked saw a modest uptick, while hourly wages and total payrolls likely just kept pace with inflation—though we’ll need next week’s data to confirm. The real concern is the slowdown in aggregate real payrolls over the past five months. It’s not yet in negative territory, but it could signal that a peak is taking shape.
On the positive side, year-over-year job gains have remained relatively stable over the past six months, and the three-month average of job growth has also held steady. In contrast, the unemployment data presents a more troubling outlook. Several unemployment-related metrics have reached three-year highs.
The 151,000 jobs gain was driven largely by the private sector’s 140,000 gain. However, the modest 11,000 job increase in government jobs, coupled with a -11,000 federal job decline, highlights uneven contributions across sectors. The strong three-month average of +200,000 jobs offers reassurance of ongoing health, but the resumption of slight downward revisions (net -2,000 jobs) and the household survey’s dramatic -588,000 job drop introduce caution.
The addition of 2,294,000 jobs year-over-year (averaging 191,000 per month) demonstrates consistent job growth. The U3 unemployment rate’s modest rise to 4.1% and the Sahm rule remaining untriggered (with a three-month average increase of less than 0.4%) suggest the labor market is not currently signaling an economic downturn.
However, the sharp rise in the U6 underemployment rate to 8.0% (up 0.5% and 1.6% above its recent low) and the increase in people not in the labor force who want jobs (up 414,000 to 5.893 million) highlight vulnerabilities. These trends suggest a cooling labor market or structural challenges, such as a mismatch between available jobs and workers’ needs or preferences.
The latest data on average hourly earnings shows a monthly increase of $0.09, or +0.3%, bringing the average hourly wage to $30.89. On a YoY basis, this translates to a +4.1% gain, marking the highest annual increase in three months. However, this figure aligns closely with the average YoY percentage gain observed since last April, suggesting a consistent trend rather than a sudden surge. Notably, this wage growth exceeds the 2.9% YoY inflation rate (down from 3.0% last month).
As of now, it’s too early to predict with certainty. The economy shows potential for stabilization, supported by solid fundamentals, but it’s not immune to risks that could lead to a downturn. It’s a wait-and-see situation, with the next few months of data and policy decisions likely to clarify the trajectory.