The headline:
The economy lost 92,000 jobs in February, and the unemployment rate edged up to 4.4%, the Bureau of Labor Statistics said Friday in a surprisingly bad employment report that raises doubts about the health of United States commerce.
Forecasters had expected the unemployment rate would hold at 4.3%, and that job growth would total 58,000.
The interpretation:
There is “no escaping the fact that the labor market is not as healthy since Trump 2.0 came into office, and Washington economic officials will have to redouble their efforts,” FWDBONDS chief economist Chris Rupkey wrote in a note on Friday’s report. “Economic growth can remain solid for a time when jobs growth slows, but it cannot continue to expand indefinitely at a satisfactory pace.”
What it means…for Trump
Friday’s report indicates that the labor market is slowing down, which would threaten the political prospects of the GOP, which has already been dragged down by President Donald Trump’s poor economic approval ratings.
Up until February, there had been two major reasons to think that the underlying health of the economy was better than it would seem at first blush.
The first is that private-sector employment had been relatively resilient. Overall job losses have been weak in part because of cuts to federal employment implemented by the Trump administration. In February, though, private-sector payrolls dipped by 86,000.
The second is that some of the slowdown in hiring was attributable to Trump’s immigration policies, which have massively slowed migration into the country.
What it means for…the Fed
Friday morning’s surprisingly weak report led investors to very slightly increase the odds that Federal Reserve officials will cut their interest rate target this year.
No rate hike is expected for the next meeting, scheduled for the middle of this month. But investors now see a rate cut by June as a 50-50 proposition.
Trump has pressed for months for Chairman Jerome Powell to lower rates to boost borrowing and spending.
He has nominated Kevin Warsh, a former member of the Fed’s board of governors, as a replacement for Powell when his term as chairman ends this spring.
The underlying reality
Friday’s report shows that the labor market is heading in the wrong direction to start 2026.
It is helpful to look at the overall trend for the labor market. With revisions to the numbers for December and January, the three-month moving average of job gains was just 6,000 in February.
That is well short of the roughly 114,000 new payroll jobs needed each month to keep unemployment from rising – the “breakeven rate” of job growth – according to one estimate from the Federal Reserve Bank of Atlanta.
But that figure is highly uncertain, thanks to the Trump administration’s crackdown on illegal immigration. The breakeven rate might be closer to zero if net migration has stalled, and it might even be negative if more people are leaving the country than entering.
Prime-age employment, relative to the overall population, is strong by historical standards. It dropped just a tenth of a percentage point in February.
Recession watch
The unemployment rate, taken from the jobs report’s household survey, is still low by historical standards, although it has been drifting upward. It rose a tenth of a percentage point to 4.4% in February.
Recessions entail a rising unemployment rate.
Friday’s data suggests that the U.S. labor market is moving away from triggering one major recession indicator — namely, when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. This indicator, known as the Sahm Rule, had signaled the start of all post-war recessions.
The indicator had been triggered in mid-2024, but is not signaling a recession right now.
What’s happening with federal government employment
Federal government employment fell by 10,000 in February. It has been declining in recent months, and plunged in October thanks to the end of the “deferred resignation” promoted by the Trump administration at the end of September. Federal employment is now down about 327,000 since Trump came into office.
The number of federal employees is a key statistic to watch to see the effects of the budget-cutting efforts of the Trump administration and the Department of Government Efficiency.
What’s happening with manufacturing employment
Employment in manufacturing fell by 12,000 in February, adding to a downward trend.
The manufacturing sector is of particular interest because Trump has said that his tariffs will bring manufacturing to the U.S. from other countries. He’s imposed tariffs on China and trading partners around the world, and on steel, aluminum, autos, auto parts, and a number of other goods and services.
So far, though, the sector has lost 100,000 jobs during his time in office.
What’s happening with employment in other important sectors
The leisure and hospitality sector has, over the past year, exceeded the employment levels it reached in February 2020, right before restaurants and bars were forced to shut down across the country.
But it declined in February, and is now only barely above its pre-pandemic level.
Construction employment fell by 11,000 in February.
Economists are watching closely for any signs of slowing hiring in construction because the housing market took a massive hit over the past few years as mortgage rates have soared alongside the Fed’s rate hikes. The sector is also under pressure from Trump’s tariffs and his immigration overhauls.
Unemployment rates by race/ethnicity
The household survey also includes unemployment rates by race and ethnicity. Rates for all groups neared record lows in the past few years, but have risen in recent months.
In particular, the unemployment rate for black workers was 7.7% in February, the highest since 2021.