In February, the US economy experienced a less-than-expected increase in job creation, with only 151,000 new positions added instead of the anticipated 160,000. This data was released by the Bureau of Labor Statistics, reflecting a downward revision of January's job numbers by 18,000, bringing the total to 125,000 new jobs, while December's gains were adjusted up by 16,000.
The unemployment rate rose to 4.1%, up from 4% in January, falling in line with market expectations. Thomas Feltmate, a Senior Economist at TD Economics, noted that payroll growth showed a modest rise in February after a weaker performance in January, which he attributed to adverse weather conditions and the California wildfires.
He cautioned that job growth may further decelerate in the coming months due to an increase in federal layoffs stemming from the Department of Government Efficiency and ongoing uncertainty surrounding trade policies. According to the BLS, federal employment dropped by 10,000 positions in February. Reports indicate that the Department of Government Efficiency, established by President Donald Trump, has terminated thousands of federal jobs.
In contrast, private sector payrolls showed an increase of 140,000, a significant rise from an 81,000 gain the previous month, although it was below the consensus of 146,000 from Bloomberg. The service sector notably contributed to this increase, adding 106,000 jobs, while the goods-producing sector made a comeback with 34,000 new jobs added. Hourly wage growth stood at 0.3% for the month, consistent with market expectations.
On a year-over-year basis, average earnings increased by 4%, which was slightly below the 4.1% growth anticipated by analysts. Feltmate expressed that financial markets are showing growing concerns about the prospects of slowing economic growth. Notably, fed futures now fully reflect expectations for three rate cuts of 25 basis points each by the end of the year.
Despite this, he suggested that the Federal Reserve will not be swayed by recent market fluctuations, especially considering the current strength of the labor market and the potential for policy modifications that could exacerbate ongoing inflationary pressures. In light of these developments, markets are largely forecasting that the central bank will maintain its current policy rate during the upcoming meeting, as indicated by the CME FedWatch tool..