In recent weeks, an unexpected slowdown in economic indicators has sparked concerns that growth momentum is fading. Comparatively, the February Jobs report delivered fewer surprises, and while some details were a bit weaker, this report showed a labor market that still looks relatively healthy.

In the details:

• Payroll growth just misses consensus estimates: Nonfarm payrolls rose 151k, just below expectations of 160k. Revisions to the prior two months were mixed, with 16k jobs added to December but 18k jobs removed from January. Post revisions, the three-month moving average of payroll gains eased to a still strong 200k. Weather, again, may have suppressed growth, as the number of people working part time due to bad weather increased for a second straight month.
• Services lead but goods improve: Private payrolls rose 140k with gains widespread across sectors. Services (+106) continued to lead the charge. Health care and social assistance (+63k) remained the best performing sector while retail trade employment fell, likely reflecting the shedding of employees hired during the holiday season. Employment in goods-producing sectors rose by 34k, its largest gain since 2023. Government employment rose, but this was largely a local government hiring story. Federal government employment fell by 10k, likely because of the federal hiring freeze. That said, the impact of federal layoffs should be more apparent in the March report. Initial jobless claims for federal employees didn’t spike until the week ending February 22^nd, one week after the reference period for this report.
• Unemployment ticks higher: In the household survey, the unemployment rate ticked higher to 4.1% even as labor force participation fell, driven by a sharp 203k increase in the number of unemployed workers. Moreover, the U-6 unemployment rate, a broader measure of unemployment that includes part-time, discouraged and marginally attached workers, rose to its highest level since 2021.
• Wage growth decelerates: After accelerating last month, wage growth eased to 0.3% m/m, bringing the y/y gain to 4.0%. The average workweek held steady at 34.1 hours after falling last month, indicative of slowing labor demand, although cold weather may have biased this lower.

Overall, market reaction to this report was muted. Rate cut expectations were largely unchanged, with investors still expecting just over three full cuts in 2025. 10-year yields moved lower after an initial move higher, while the S&P 500 continued to trend lower after an initial spike. Moving forward, what matters most for investors and the Federal Reserve is whether the recent weakness in the soft data, (PMIs, consumer confidence) sparked by policy uncertainty, persists and translates into weaker hard data.

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