Mar 8, 2024 - Economy

The February jobs report shows a healthy, but cooling, labor market

Animated illustration of a trend line teetering back and forth as it balances on a briefcase

Illustration: Annelise Capossela/Axios

It's not the rip-roaring job market we thought it was, but Friday's payrolls release shows employers still have the healthy appetite for workers that's kept the economy humming in recent years.

Why it matters: The report had something for everyone — hiring was strong, but other indicators like a higher jobless rate suggest the U.S. labor market is shifting to a cooler state.

What they're saying: "This report was a bit of a Rorschach test — viewers will see what they want to see," Richard de Chazal, a macro analyst at William Blair, wrote in a note.

  • The overall picture is "one of a still robust but loosening labor market," EY-Parthenon senior economist Lydia Boussour wrote in a note.

By the numbers: The economy added 275,000 jobs in February, but the government said January's figures were not nearly as hot as first indicated.

  • January's job gains were revised down by a whopping 124,000 to 229,000, while December payrolls also edged down slightly.

The big picture: The job gains were the good news, but the other headline figure from a separate survey — the unemployment rate — looked more troubling, at least at first.

  • The unemployment rate rose by 0.2 percentage point to 3.9%. That's the highest since early 2022 but still historically low. In fact, you would have to go back more than 50 years to find a longer period in which the unemployment rate held below 4%.
  • The rising jobless rate also had a silver lining. The jump came in part because more prime-age workers, those aged 25-54, entered the workforce. The share of prime-age workers with a job rose to 80.7% — slightly below the recent high seen last summer.

Perhaps most encouraging — at least for monetary policymakers — is that the good job gains came alongside more moderate wage gains relative to January.

  • Average hourly earnings rose a red-hot 0.5% in January, but that now looks like a one-off. In February, average hourly earnings rose just 0.1% and are up 4.3% over the past year.

The bottom line: "If the economy can continue to add jobs but without triggering a resurgence in wage growth, the Fed will achieve its soft landing," Seema Shah, chief global strategist at Principal Asset Management, wrote.

This week on Capitol Hill, Fed chair Jerome Powell delivered a nuanced message on the outlook for interest rates. He stated that cuts are likely this year and that the central bank needs to gain greater confidence inflation is coming down before it pulls the trigger.

  • The new jobs data are entirely consistent with those plans.

Between the lines: The negative revision to previous months' payrolls lessens the worry that the job market is reaccelerating. The higher jobless rate indicates a bit more slack in the labor market. Subdued growth in hourly earnings suggests wage inflation isn't much of a problem.

  • Those data all point to a labor market that is coming into a non-inflationary balance, giving a green light for rate cuts.

Yes, but: The inflation numbers themselves are likely more important for Fed officials to decide when the time has come for rate cuts. And key readings on that front are due out next week, when the February Consumer Price Index (Tuesday) and Producer Price Index (Thursday) are released.

In Powell's congressional testimony, he said that "we're waiting to become more confident that inflation is moving sustainably at 2%."

  • "When we do get that confidence, and we're not far from it, it'll be appropriate to begin to dial back the level of restriction." (Emphasis ours.)
  • "Not far from it" sure seems consistent with a summertime rate cut, assuming the inflation data cooperate.
  • As of Friday at 10:45am ET, futures markets priced in a 77% chance that by June, the Fed will have cut rates at least once, per the CME Fedwatch tool.
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