The United States labour market showed unexpected signs of weakness in February after the economy lost jobs and the unemployment rate edged higher, raising questions about the strength of employment conditions and complicating the outlook for monetary policy.
Total nonfarm payroll employment declined by 92,000 during the month, while the unemployment rate increased to 4.4%, according to data released by the U.S. Bureau of Labor Statistics.
The result came as a surprise, with markets expecting payrolls to rise by 59,000 following a downwardly revised increase of 126,000 in January. The unemployment rate had been forecast to remain steady at 4.3%.
The February payroll decline marked the sixth contraction since January 2025 and the second-largest drop over that period, a sign that the labour market may be losing momentum after several years of strong job creation.
Part of the weakness reflected temporary factors amid a strike involving healthcare workers, as well as severe winter weather that disrupted employment in sectors including construction and leisure and hospitality.
Analysts from ING noted: “February was filled with winter storms, impacting construction the other way and hurting leisure and hospitality as people stayed in the warm at home.
"There was also strike activity and that contributed to physicians’ offices subtracting 37k from the total.”
Even after accounting for these factors, economists said the report raised concerns about the Federal Reserve’s assessment that the labour market was stabilising.
The outlook for employment is also being clouded by geopolitical tensions and policy uncertainty, as the war in the Middle East pushed oil prices sharply higher, increasing inflation risks and contributing to heightened volatility in financial markets.
Despite the weaker employment report, economists broadly expect the Federal Reserve to maintain its benchmark overnight interest rate in the 3.50% to 3.75% range at its March policy meeting.
However, expectations for a potential rate cut in June have increased following the latest data.
According to the CME Group FedWatch Tool, markets are now pricing in a 41.5% of a 25-basis-point (bp) rate cut in June, and a 7% chance of a 50bp cut.
The decline in payrolls reported in the survey was widespread across several sectors.
Healthcare employment led the losses, shedding 28,000 jobs after a strong increase of 77,000 in January. Employment at physicians’ offices fell by 37,000 positions, largely reflecting a strike involving about 31,000 healthcare workers at Kaiser Permanente as well as weather-related disruptions.
The strike, which affected workers in California and Hawaii, has since ended.
The information sector also recorded job losses, with employment declining by 11,000 positions during the month.
Government employment continued to shrink, as Federal government payrolls dropped by another 10,000 jobs, extending a broader contraction that has seen federal employment fall by 330,000 positions, or 11.0%, since peaking in October 2024.
The decline comes as the White House continues an aggressive effort to reduce the size of the federal workforce.
Transportation and warehousing employment fell by 11,000 jobs, driven primarily by layoffs among couriers and messengers.
Construction payrolls also declined by 11,000, with residential specialty trade contractors accounting for much of the decrease.
Leisure and hospitality employment dropped by 27,000 jobs, with most of the decline occurring in restaurants and bars. Severe winter weather across large parts of the United States likely contributed to the slowdown, as heavy snowfall and frigid temperatures kept many consumers at home.
Employment also declined in professional and business services as well as in manufacturing, which lost 12,000 jobs.
Only a handful of sectors managed to record modest gains during the month, including social assistance and financial activities.
The breadth of job growth also narrowed. The share of industries reporting increases in employment fell to 50.8% from 54.6% in January, indicating a more fragile labour market backdrop.
The labour force participation rate declined to 62.0% in February, marking its lowest level since December 2021.
