Quick overview

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The U.S. economy lost 92,000 jobs in February, a surprise development for markets that had expected employment to increase. Two extraordinary factors weighed on the final figure, which ultimately showed job losses across all categories.

After January’s strong report, investors had expected February to confirm an improvement in the U.S. labor market. That did not happen. Last month the U.S. economy shed 92,000 jobs and unemployment rose again, further dampening sentiment on Wall Street, already rattled by the war in the Middle East.

The figure came as a cold shower for analysts, who had estimated that between 55,000 and 58,000 jobs would be created.

February’s data show job destruction across all categories, with the services sector accounting for the bulk of the decline (-61,000), while employment in the goods-producing sector fell by 25,000.

In addition, the loss of 11,000 jobs in information services was attributed to “AI-related cuts,” an issue that has been unsettling Wall Street due to its potentially disruptive impact.

Two extraordinary factors also weighed on the employment report. First, severe winter weather affected economic activity more broadly during the month. Second, the strike at Kaiser Permanente, when more than 30,000 healthcare workers walked out in Hawaii and California.

Because the strike coincided with the week in which the Bureau of Labor Statistics conducts its survey, it was directly subtracted from the count. The healthcare sector alone lost 28,000 jobs, even though it is normally the main engine of job creation.

Slow but steady labor market deterioration

A net revision to the previous two months removed another 69,000 jobs from payrolls, leaving a much weaker picture than initially suggested by earlier releases.

Private payroll data also surprised to the downside, with a decline of 86,000 jobs. Meanwhile, the three-month moving average dropped to just 6,000, a sign that job creation has been losing momentum sharply.

At the same time, the unemployment rate rose to 4.4% from 4.3%, while the labor force participation rate fell from 62.1% to 62%.

This is an important point because a decline in participation means some workers leave the labor force and are no longer counted as unemployed. In other words, if participation had remained constant, the rise in the unemployment rate would likely have been even larger.

Impact on the Fed and markets

It is also worth noting concerns about the quality of payroll data, particularly after Federal Reserve Chair Jerome Powell recently indicated that the headline figure may be overstating overall job growth by as much as 60,000 per month. If so, the “true” employment decline could be even larger.

Even so, the February labor market report is unlikely to significantly alter the Fed’s near-term policy outlook, despite the bleak numbers. “Labor market risks now appear clearly tilted to the downside, and January’s strong data look more like a one-off event than a turning point,” analysts noted.

After adopting a “wait-and-see” stance at the January FOMC meeting, officials appear willing to maintain that approach for now, partly because uncertainty continues to cloud the outlook — including the energy price shock stemming from the ongoing conflict in the Middle East.

Markets have nevertheless adjusted their expectations again and now assign nearly an 80% probability that there will be at least two rate cuts before the end of the year. Yields on 2- and 10-year U.S. Treasury bonds erased their initial gains after the report was released.