1️⃣ Payrolls rose 151k in February, compared to 125k in January (revised down from 143k). December & January payrolls were revised down by 2k. Near-term payroll growth trends remain well above the 110k breakeven pace needed to keep unemployment at 4.1%. When adjusting the BLS population projections for 2020-2025 with higher CBO projections, the breakeven payrolls growth pace that keeps the unemployment rate constant rose faster over that period (gray vs purple lines in the first chart 👇). While payroll trends recently have been higher than during the fall, it barely can keep up with the breakeven pace based on higher CBO population growth projections (orange vs gray lines in the first chart 👇). This suggests there’s no imminent improvement forthcoming in the unemployment rate over the near term.
2️⃣ The unemployment rate increased 10bps to 4.1% in February. In more precise terms, the rate eased from 4.011% to 4.139%. Household employment fell by 588k, but this will likely bounce back in forthcoming reports based on historical patterns. The labor force participation rate decreased a notable 20bps to 62.4%; this is a main risk to keep an eye on for the growth and inflation outlooks.
3️⃣ Wage growth was +0.3% month/month (down from a downwardly revised 0.4% in January) and 4.5% year/year, up from 3.9%.
Furthermore:
➡️ January’s data on total and short-term unemployed and employed persons helps estimate the job-finding rate, which declined after improving over the previous two months, as overall unemployment grew faster than new unemployment: the odds of exiting unemployment decreased to 45%.
➡️ Combining job-exit and job-finding rates gives an alternative, flow-consistent unemployment rate that’s been rising ahead of the official rate for most of 2024 (second chart 👇). Comparing current smoothed headline and flow-consistent unemployment rate trends suggests near-term stabilization around 4.1%.
➡️ Given the uneven job growth across sectors, adjusting wage growth for sectoral and skill composition is crucial. Using a correction method from the Atlanta Fed February month/month hourly wage growth stood at 0.3% vs. the official 0.3%, and similarly for production and non-supervisory workers,it remained unchanged at 0.3%. Annual wage growth still exceeds rates consistent with 2% inflation and 3% “Main Street” inflation expectations in February (final chart 👇).
Today’s data means the Fed is confronted with a very uncertain outlook with on the one hand a stable but fragile labor market, but on the other hand a pickup in inflation momentum. For now, the Fed will remain on hold.
The February jobs report revealed a rise in the unemployment rate to 4.1%, accompanied by monthly net nonfarm payroll gains of 151,000.
Despite a modest pace of job gains and rising unemployment in February, the U.S. labor market is solid. Before the jobs report was released, the odds were already low for an interest rate cut in the next Federal Reserve decision on March 19, and the February jobs report further lowered rate cut expectations.
Due to the modest level of February payroll gains against a backdrop of trade policy and tariff uncertainty accompanied by weakened consumer and business confidence, the odds of a June Fed interest rate cut increased following the release of the February jobs report.
The potential for a deceleration in year-on-year consumer inflation could cinch the next Fed rate cut in May or June 2025.
Today’s benign jobs report was a neck brace for market whiplash — for not long
This morning’s release of job numbers for February provided a rare moment of calm at the end of a week that saw investors buffeted and baffled by abrupt twists and turns in tariff headlines.
But the relief was only temporary.
U.S. equity markets opened higher as the employment report — though a bit weaker than forecasts — still showed a generally steady labor market.
By late morning, those early equity gains evaporated, and markets were on track for another negative session, with the S&P 500 Index headed for its worst week since last September.
As for the details of today’s report, nonfarm payrolls increased by +151,000 in February, slightly less than consensus expectations of +160,000, but an improvement over January’s +125,000 (revised downward from +143,000).
The unemployment rate inched higher, to 4.1% from 4.0%, as the labor force participation rate ticked lower, to 62.4% from 62.6%.
Growth in average hourly earnings, which has a direct impact on inflation, was +0.3% for the month and +4.0% year-over-year, largely in line with expectations and recent trends.
There was little indication that the Trump administration’s directive to shrink the federal workforce had a meaningful impact on February payrolls, but it’s still early days.
And while the report does confirm a continued degree of slowing in the job market, there’s nothing in it to alter our view that the Federal Reserve will remain on hold at its next policy meeting later this month.
For now, equity markets are likely to remain volatile and highly reactive to news on tariffs.
I had the opportunity to cover these topics on this morning’s edition of CNBC Squawk Box.
Special thanks to host Becky Quick for inviting me to participate in the discussion on payrolls, their implications for the economy, and the state of financial markets.
Given today's jobs report, how many interest rate cuts are you expecting this year?
The US economy continued to generate new jobs at a healthy pace in February, according to the latest monthly jobs report. However, with tariffs and federal job cuts, the outlook is less clear than usual.
The US economy added 151,000 jobs in February, according to the latest report from the Bureau of Labor Statistics. Meanwhile, the unemployment rate ticked up to 4.1% from 4.0% in January.
Both key readings were on the softer side. Nonfarm payroll employment had been forecast to rise 160,000 vs. an originally reported 143,000 increase in January, according to FactSet. That gain was revised down to 125,000. Meanwhile, the unemployment rate had been forecast to remain steady at 4%.
“Job growth is holding steady, but headwinds are building,” says Morningstar senior US economist Preston Caldwell. Against this backdrop, Federal Reserve interest-rate cuts are seen as being on hold.
Monthly Payroll Change
Caldwell notes that nonfarm payroll employment grew at a 1.5% annualized pace in the three months ending February 2025. That’s down slightly from January’s 1.8% pace. February was “still a solid result.”
Federal Job Cuts and Tariff Impact Yet to Be Felt
However, the jobs report data does not capture any impact on hiring from President Donald Trump’s whipsawing tariff policies concerning the country’s biggest trading partners, or his efforts to slash the federal workforce.
“The BLS’ surveys have likely yet to register more than a sliver of the full impact from federal government layoff,” Caldwell says. “That should change in next month’s job report.” He notes that Challenger recently tallied federal job cuts at 62,000, and another 75,000 have reportedly accepted buyouts.
“Additionally, economic growth may now be trending down,” Caldwell explains. He notes that the Atlanta Fed GDPNow projection for a 2.4% decline in real gross domestic product in the first quarter of 2025 is driven by a temporary surge in imports. “But the more stable components of GDP, consumption and investment, also appear to be decelerating. If this persists, given heightened policy uncertainty from tariffs, private employers will likely pare back hiring.”
Fed Rate Cuts On Hold
A March interest-rate cut was already unlikely, and Caldwell believes Friday’s jobs report is unlikely to move the needle for the central bank. “For now, the job market remains in balance, sending no strong signal for the Fed to either cut or hold firm,” he says.
For now, other forces weighing on the economic outlook will likely take precedence for central bankers. “The Fed has much more on its mind—namely, gauging whether the inflation data continues to reflect convergence to the 2% target and anticipating any inflationary impact from tariff hikes,” Caldwell says. Core PCE inflation (the Fed’s preferred measure of price pressure, which excludes volatile food and energy costs) came in at 2.6% annually in January. That’s significantly lower than its 2022 peak, but still higher than the central bank’s goal. Meanwhile, the outlook for tariffs continues to evolve.
On Friday, investors gained confidence that the Fed will continue its pause in March, according to the CME FedWatch Tool. Bond futures markets now see a 97% chance that the central bank will hold rates steady at their current range of 4.25%-4.50% at its March meeting, up from 88% odds a day earlier.
I know from my conversations with business leaders across the Twelfth District that uncertainty surrounding the economy and economic policy is elevated. And economic research will tell you that uncertainty is a source of demand restraint. We are also getting some mixed signals from markets.
From a monetary policy perspective, all of that is a reason to be careful and deliberate.
That's because the FOMC has interest rates in a good place. And there are plenty of signs that the economy is solid. As you can see from the chart below, unemployment is still below our median long-run projections, and inflation has moved toward our 2% goal.
Rather than react to each headline, newsflash, forecast, or market gyration, I prefer to take a step back and look at the big picture. The economy is like a Pointillist painting. You have to step away from it to understand the full scene. And what I am seeing is a resilient economy.