Jobs growth once again topped expectations in February, but cooler wage growth, an uptick in the unemployment rate and downward revisions to the prior month's blowout report keep the Federal Reserve on track to cut interest rates as soon as June, experts say.
U.S. nonfarm payrolls increased by 275,000 in February, the Bureau of Labor Statistics said Friday, easily topping economists' estimate for the creation of 200,000 jobs. Importantly, both the December and January payrolls data were revised lower by a combined 167,000, with 124,000 of those jobs deducted from last month's reading.
The unemployment rate, which is derived from a separate survey, rose to a two-year high of 3.9% vs the 3.7% expected. Despite the uptick in joblessness, the unemployment rate remains at half-century lows. In dovish news, wage growth cooled somewhat and labor participation was lower than expected.
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Experts say the labor market data are mixed, presenting neither a strongly bullish nor bearish picture. This should allow the Federal Open Market Committee (FOMC) to stay the course as it prepares to bring rates down from a 23-year high.
Fed Chief Jerome Powell and the FOMC are determined to stamp out the worst bout of inflation to hit the U.S. in four decades. But the robust labor market has been a major bump in the central bank's road.
As of March 8, interest rate traders assigned a 57% probability to the Fed enacting its first quarter-point rate cut in June, essentially unchanged from a week ago, according to CME Group's FedWatch Tool.
With the February jobs report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.
February jobs report: The experts weigh in
"If last month's employment report indicated growth was too hot, and inflation pressures too high, for the Fed to begin recalibrating rates, this month's release should reduce such fears. While job gains were higher than expected, downward revisions to last month's blow-out number of 353,000 eases the fears of overly tight labor markets. The same can be said of average hourly earnings as they cooled from 0.6%, revised lower to 0.5%, to this month's 0.1%. The headline unemployment rate moved up 0.2% to 3.9%, continuing a string of sub-4% unemployment readings, the likes of which we have not seen since the 1960s. Overall the soft-landing scenario is still in play as the labor market continues to show signs of coming into balance without a significant increase in the unemployment rate. The Fed absolutely should consider reducing rates in coming months, but the employment picture continues to show they can be measured in their approach." – Steve Wyett, chief investment strategist at BOK Financial
"Within the jobs data released this morning, there were many moving parts with some indicators showing signs of strength and others displaying pockets of weakness. Overall, we see the labor market as healthy, which bodes well for the consumer. But importantly, it wasn't so strong that it would cause the Fed to alter its outlook, and given this, we think the Fed is set to begin lowering interest rates later this year. To borrow a phrase we heard from last night's State of the Union, the state of our labor market is strong, but not strong enough to alter the Fed's outlook." – George Mateyo, chief investment officer at Key Private Bank
"Once again, jobs came in better than expected, pushing back in any recession calls. What stands out is wages only grew 0.1%, which was low and didn't raise any inflationary alarms. All in all, this was a very positive report. The bottom line is our economy continues to chug along, being led by employment. Given the consumer makes up close to 70% of our economy, this is a very positive sign for strong consumption in '24." – Ryan Detrick, chief market strategist at Carson Group
"On balance, this report confirms that the labor market is strong but not overheating, which means we’re still on track for interest rate cuts this year." – Sonu Varghese, global macro strategist at Carson Group
"The data in today's jobs report points to a more dovish outlook for rates, as the downward revision to January's data and upward movement in the unemployment rate reflect a slowing labor market. The market has responded by factoring in a fourth anticipated rate cut this year, with the first expected in June. This expectation seems rational to us. The market's response to today's jobs report reinforces our belief that the yield curve will experience a bull steepening, where the intermediate range of 3-7 years will drive the greatest price movement. One potential risk to the expectation of four rate cuts is the possibility of an increase in inflation. If next week's CPI data mirrors January's unexpectedly high figures, the Fed may be cautious about cutting rates prematurely. However, if next week's inflation report suggests that January was an outlier, then a rate cut in June appears more likely." – Mike Sanders, head of fixed income at Madison Investments
"The February jobs numbers came in better than expected, with a significant beat in job creation. However, this was somewhat offset by an uptick in unemployment and the hot January job report last month was substantially revised down. Notably, wage growth cooled somewhat, and labor participation was lower than expected. Overall, these figures do not lean significantly bullish or bearish; they present a mixed bag that slightly leans dovish. This can be seen as very much in line with the latest expectations for no cuts at the next meeting in March, a first cut in June, and three cuts for the year. Should we start referring to this as 'Powell's Path?'" – Scott Acheychek, CEO at REX Shares
"Unemployment was higher than expected, wage growth was lower and some of January's big gains were revised out. That reduces worries about an overheating economy and puts the soft-landing narrative back in play. Cost pressures continue to stabilize, keeping the Fed on track for cutting rates. The market has fought a rising tide of higher rates for two years and now may finally get some relief." – David Russell, global head of market strategy at TradeStation
"Results from the February jobs report were somewhat soft, though not alarmingly so. The unemployment rate climbed to its highest level in two years, and while the establishment survey indicated that payrolls grew by a healthy 275,000, January saw a sharp downward revision. Wage growth slowed in February, but average hours worked increased. Overall, this report brings a rate cut more firmly into view, which the Fed will most likely deliver in the second quarter." – Curt Long, vice president of research and chief economist at America's Credit Unions
"While this morning's headline jobs number exceeded the expected increase, other aspects of the report showed signs of moderation. January's very strong addition of 353,000 jobs was revised down significantly and average hourly earnings growth slowed from January's hot numbers on both a month-over-month and year-over-year basis. The Fed will likely be pleased to see this moderation from the January data. Recall that January's consumer price index also came in hotter than expected and higher than December month over month. The more the set of January data appears to be an outlier, the more likely the Fed will start to cut rates sooner. The Fed will no doubt be watching the economic numbers closely, and while a May cut seems unlikely, June is probably on the table. Overall, the data are consistent with sustainable economic growth and could support not only continued strength in equities but a broadening of the market to more cyclical small- and mid-cap, consumer and industrial stocks." – David Royal, chief financial and investment officer at Thrivent
"February's report suggests a healthy labor market that is softening due to increased pressure from interest rates and tightening economic conditions. Significant downward revisions to employment estimates in prior months reinforce that view. Job growth continues to be driven by sectors with unique supply and demand dynamics such as Government and Healthcare and Social Assistance. Another strong jobs report adds to the Fed's margin of error and the uneven sector growth may result in some deterioration in next week's inflation numbers. The Fed will be assessing the extent to which robust job growth is driving inflation via increased spending." – Noah Yosif, chief economist at the American Staffing Association
"Today's headline jobs numbers surprised to the upside again. However, there was a significant downward revision to last month's numbers. The unemployment rate ticked higher and average hourly earnings dropped providing signs that inflation continues to ease. A rate cut at this month's Fed meeting is all but off the table, but today's data does nothing to derail the market's expectation for easing later in the year." – Eric Merlis, managing director and co-head of global markets at Citizens
"Markets are still cautiously expecting rate cuts to start in June, and this report does little to move the needle one way or another in our view. On the surface, this was another blowout jobs report, with the economy adding 275,000 jobs versus the 200,000 expected. However, we saw some significant revisions to the numbers from last month, with January's payroll growth revised lower by 124,000. Several figures that appeared skewed in January’s report seemed to normalize this month, including some inflationary numbers such as average hourly earnings, which rose by a much more modest 0.1% in February compared with 0.6% in January. The FOMC has stood its ground so far this year and forced the market to readjust its expectations for interest rates. With market expectations now more closely aligned with the central bank, interest rates should begin to stabilize and provide a smoother ride for bond investors going forward." – Austin Schaul, head of research at Avantax
"This morning's jobs report provides economists with a challenging puzzle of mixed results. Today's numbers are a mixed bag, and we will all likely need to wait for more clarity from next month's expected revisions to truly understand this labor market's direction." – Andrew Crapuchettes, CEO at RedBalloon
"As markets have generally been in 'more jobs equals fewer cuts' mode, today's number pumped the breaks on that mantra. Big picture: these were helpful numbers for the Fed to gain confidence. Let's see what happens with the Summary of Economic Projections." – Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management
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