U.S. February Employment - Decline follows an above trend January, trend near flat
February’s non-non-farm payroll with a 92k decline is well below expectations but needs to be seen alongside a 126k increase in January, and in the context of bad weather between the two surveys. Unemployment edged up to 4.4% from 4.3% though more positive are a 0.4% rise in average hourly earnings and a steady workweek of 34.3 hours. Weather may have played a part in restraining a near consensus 0.2% fall in January retail sales.
The bad weather came late in January and extended into early February, coming too late to impact the January non-farm payroll but relevant for both January retail sales and February’s non-farm payroll. We still feel a March FOMC easing is unlikely, particularly given heighted uncertainty on inflation given the situation in the Middle East.
January’s payroll saw a minimal downward revision to a 126k increase from 130k but December was revised to a 17k decline from a 48k increase. Private payrolls fell by 86k in February with January revised to a 146k rise from 172k, and December revised to a 7k decline from a 64k increase. The three month non-farm payroll average is now -1k with the private sector only marginally positive at 17k.
The standout in the February non-farm payroll breakdown is a 37k decline in the usually strong private education and health sector, and that looks like a correction from an unusually strong 129k increase in January. This further suggests the January and February data should be seen together.
Also weak was a 27k decline in leisure and hospitality, and that may be in part due to weather. Construction, also weather sensitive, fell by 11k but that follows a 48k January increase. Manufacturing, which is less weather-sensitive, at -12k is weaker than some recent improving manufacturing sector surveys have implied.
The unemployment increase looks a little more significant before rounding, to 4.44% from 4.32% in January (revised from 4.28%). The January data was revised because the annual population control adjustment was done. It is normally released with the January report but this year the adjustment was delayed to February.
The population control adjustment is strongly negative, contrasting a strong positive in January 2025, with the labor force adjusted down by 1417k and employment in the household survey (not the non-farm payroll) adjusted down by 1432k, looking like a reflection of changed immigration policy.
Excluding the population control adjustment, January saw the labor force up by 387k and employment up by a strong 537k. February saw employment correct lower by 185k while the labor force edged up by a marginal 18k.
Average hourly earnings growth remains quite firm, at 0.40% before rounding lifting yr/yr growth to 3.8% after two months at 3.7%, suggesting weak employment growth is not restraining wage growth with the labor market still quite tight.
A unchanged workweek of 34.3 hours means that three of the last four months have been at that pace while the preceding six were at 34.2. That suggests the economy maintains momentum and the slowness in employment growth may owe more to slowing a supply than slowing demand.
January’s retail sales decline of 0.2% was near consensus with December unrevised at unchanged but November revised marginally lower to 0.5% from 0.6%. Sales ex autos were unchanged for a second straight month but sales ex auto and gasoline saw a moderate 0.3% increase.
It is already known that auto sales picked up in February after what may have been weather-related weakness in January while gasoline prices edged up in February and look set to rise sharply in March. . The retail sales weakness is not a strongly negative signal but a near flat employment picture will be a restraint on consumer spending.
