The jobs report showed payroll gains came close to moderate expectations, but the details pointed to a softer labor market — even before the disruptive impact of Trump tariffs and government layoffs began to be felt. Still, Federal Reserve Chairman Jerome Powell stuck by his "solid" assessment of the job market. The S&P 500 rebounded to a slight gain on Friday afternoon, as markets started to shake off a rough week.
The February jobs data doesn't say much about where the economy is going. That's because the jobs report, which is based on mid-month surveys of businesses and households, got a boost as the effects of mid-January's harsh weather and Los Angeles wildfires reversed. Further, federal workforce cuts directed by Tesla CEO Elon Musk's Department of Government Efficiency hadn't yet gathered steam by mid-February, when the S&P 500 was still on its way too new highs as business optimism took precedence over tariff concerns.
Fed Chair Powell Will 'Wait For Greater Clarity'
"The labor market is solid," Powell said in a 12:30 p.m. ET speech at the University of Chicago Booth School of Business.
Powell cited an average of 191,000 job gains per month starting September. However, that's an odd place to start, given storm-depressed job gains of 79,500 the prior two months. Over the first two months of 2025, private sector job gains are averaging 110,500, which hints at a slowdown before government layoffs, spending cuts and tariff concerns build.
However, Powell said the "net effect" of Trump policy changes, including tax cuts and deregulation, is what will matter for the economy and monetary policy. "We do not need to be in a hurry, and are well positioned to wait for greater clarity.
Jobs Report Hits And Misses
Employers added 151,000 jobs in February, a touch below 160,000 forecasts. The private sector added 140,000 payroll jobs vs. 143,000 forecasts. Government jobs rose by 11,000, even as federal government jobs fell by 10,000 in the first sign of a DOGE effect.
The unemployment rate unexpectedly ticked up to 4.1% from 4%.
Average hourly earnings matched +0.3% expectations, putting 12-month wage growth at 4%.
Household Survey Weak
The household survey, which is used to derive the unemployment rate, showed that the ranks of the employed tumbled by 588,000. The labor force, which includes workers and those actively seeking employment, shrank by 385,000. As a result, the ranks of the unemployed rose by 203,000. The recent trend in labor force participation appears to have softened as immigration policy has tightened, and that could continue.
The household data also showed that the number of people working part-time for lack of a full-time opportunity jumped 460,000 to 4.937 million.
More Jobs Report Details
The length of the average workweek was expected to tick up to 34.2 hours, but unexpectedly held at 34.1 hours, matching the lowest level since March 2020. Weather may have been a factor, but the data is seasonally adjusted. The weak print could be an early sign of employers keeping short schedules rather than resorting to layoffs.
Health care and social assistance firms added 63,000 jobs. The goods-producing sector added 34,000, including 19,000 in construction and 10,000 in manufacturing. Retailers cut 6,000 jobs, while the leisure and hospitality sector shed 16,000.
Wall Street Reaction To Jobs Report
"The payrolls growth surprised slightly to the downside and the unemployment rate ticked up, justifying the momentum that's been building for a resumption in the Fed's cutting cycle," wrote Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management.
Seema Shah, chief global strategist at Principal Asset Management, wrote that the report "does confirm that the labor market is cooling and that it may require some assistance from the Fed in the coming months."
She added: "With no shortage of headwinds confronting the U.S. economy, the softening trend is likely to persist and may potentially deepen, given the toxic combination of federal government layoffs, public spending cuts, and tariff uncertainty."
Shah predicted a "likely short respite in volatility" for markets.
DOGE Job Cuts
On Thursday, outplacement firm Challenger, Gray & Christmas reported that U.S. employers announced 172,017 planned layoffs, a bit more than double the January total and the highest since July 2020.
The monthly layoff tracker credited 62,242 cuts to the DOGE effect, with cuts announced across 17 federal agencies. The retail sector's 38,956 announced layoffs were the second biggest contributor.
However, Labor Department data shows that fewer than 1,000 federal civilian workers claimed jobless benefits in the week through Feb. 15. That means most DOGE job cuts came too late to impact the February jobs report.
Fed Rate-Cut Odds
After the jobs report, markets were pricing in just 5% odds of a rate cut at the March 19 Federal Reserve meeting. Fed rate cut odds for the May 7 Fed meeting oscillated around 50% in recent days, but pulled back to 43% after the jobs report.
Markets are currently pricing in strong odds (71%) of at least 75 basis points in Fed rate cuts this year.
S&P 500
The S&P 500 erased sharp losses, climbing to the flat line in Friday afternoon stock market action after the jobs data and Powell's talk. That follows Thursday's 1.8% sell-off for the S&P 500, which left it 6.6% below the Feb. 19 all-time closing high.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
