February Jobs Report Shows a Surprise Drop in Payrolls
The Federal Reserve is unlikely to cut interest rates anytime soon, even with a shockingly weak February jobs report. Here's why.
The February jobs report, released ahead of Friday's open, showed a sharp slowdown in the labor market.
Job growth sizzled to start the year, with the U.S. adding 130,000 new jobs in January — more than double what economists expected — while the unemployment rate edged down to 4.3%.
But the latest release from the Bureau of Labor Statistics showed payrolls declined by 92,000 in February, missing economists' estimates for the addition of 50,000 new jobs.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The unemployment rate, which is derived from a separate survey, ticked higher to 4.4% from 4.3%.
January "was the strongest monthly gain in nine months, and runs counter to the recent narrative of a weak labor market," writes David Payne, staff economist and reporter for The Kiplinger Letter, in the Kiplinger jobs outlook. And a second straight decline in the unemployment rate "added to the surprise."
But Payne says there were "reasons to think that the January report may be more of a blip than a turnaround." For one, most of the gains came in health care and social assistance, while government, transportation and hospitality saw declines.
For another, "labor market data during the winter months are less reliable than at other times of the year, simply because seasonal shifts in hiring can be strong in winter."
In February, health care employment declined by 28,000, "reflecting strike activity," according to the BLS. Jobs in the information (-11,000), transportation and warehousing (-11.000) and the federal government (-10,000) also fell.
Average hourly earnings, a measure of inflation, rose 0.4% from January to February, and was 3.8% higher year over year.
The report also showed that December's jobs number was revised down by 65,000, from +48,000 to -17,000, and January's was lowered by 4,000, from +130,000 to +126,000. This resulted in 69,000 fewer jobs than previously reported.
Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, says the February jobs report puts the Federal Reserve "between a rock and a hard place. Significant weakening in the labor market would support a rate cut, but given the risk that higher-for-longer oil prices could trigger another inflation surge, the Fed may feel compelled remain on the sidelines."
According to CME Group's FedWatch, futures traders are pricing in majority odds that the first rate cut of 2026 will come at the Fed's July meeting,
With the February jobs report in the books, here's some of what economists, strategists and other experts around Wall Street have to say about the results and what they could mean for the Fed and investors going forward.
Experts' takes on the February jobs report and what it means for the Fed
"February's employment report resumed the trend of a weakening labor market from last year. Block's (XYZ) decision to lay off 40% of its workforce is a sign of the job bloat in the economy. Artificial intelligence is NOT replacing jobs, but job cuts ARE funding AI expenditures." – Brad Conger, Chief Investment Officer at Hirtle Callaghan
"The February jobs data came in materially weaker than expected, pointing to a cooling labor market at a delicate moment for the U.S. economy. In practical terms, this likely reduces the probability of near-term rate cuts while increasing the odds of a more data-dependent stance over the coming months. If oil prices stabilize and inflation does not reaccelerate meaningfully, this jobs report could mark the beginning of a clearer pivot toward easing. However, if geopolitical tensions sustain upward pressure on energy prices, the Fed may remain reluctant to move quickly. The current setup shows markets expect the Fed to cut once, maybe twice, this year." – Daniela Hathorn, Senior Market Analyst at Capital.com
"A stunningly weak jobs number on the face of it. The Fed is being challenged on both sides of its mandate and the key question for investors will be whether or not the Fed is likely to look through commodity-driven inflation pressures to cut rates more aggressively in the months ahead. The impact of the report on markets may be muted in the short term, as the focus remains very much on what is happening in the Strait of Hormuz." – Stephen Coltman, Head of Macro at 21shares
"The trifecta of negative private payrolls, downward revisions, and a higher unemployment rate create an unambiguous negative print for the labor market. This release shows that the labor market remains stuck in 2025's trend of weak job creation. Job growth was firmly negative last month as were revisions to the prior two months. The unemployment rate – considered a first among equals data point given the uncertainty around labor supply stemming from reduced immigration flows – also rose. Today's report is a negative for risk assets given its read-through to a softer economic outlook in a period where the Fed is likely to remain on the sidelines." – Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments
"Indications of labor market weakness are a reminder to the Fed that there could be a price to pay for delaying cuts, although near-term policy remains dictated by the ongoing Middle East conflict. Developments in Iran and their potential consequences on inflation have overshadowed the U.S. employment picture to a degree, making the path forward to potential policy normalization less clear. We expect that the Fed will eventually complete the remaining two 'normalization cuts' to return rates to neutral, however the timing is up in the air given current uncertainty." – Lindsay Rosner, Head of Multi-Sector Fixed Income Investing at Goldman Sachs Asset Management
Related content
