The labor market is finally stabilizing, but there's a catch
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New private sector data shows signs of life for a labor market that's stabilizing after a dismal year for hiring.
Why it matters: It's a welcome development in an economy digesting global trade uncertainty, fast-moving AI technological advancements and a new geopolitical shock.
- Yet just two sectors are carrying the entire labor market, making hiring more fragile than the headline numbers suggest.
What they're saying: "In our data, job market growth is gaining traction. In employment terms, February's numbers show real forward momentum," David Tinsley, a senior economist at the Bank of America Institute, told reporters Wednesday morning.
- In a separate call, ADP chief economist Nela Richardson said private sector job gains had been "gaining momentum" since mid-January, but cautioned that the predominant share of those job gains came from just two sectors.
By the numbers: The private sector added 63,000 jobs in February, according to payroll processor ADP, rebounding from the 11,000 job gains in the prior month.
- But the bulk of February's gains were concentrated in education and health services, which added 58,000 jobs last month. Other sectors were less impressive, though construction added 19,000 jobs.
Zoom in: Separate data released Wednesday morning similarly suggested that "the impression is of a strengthening labor market in the early months of 2026," the Bank of America Institute said in its monthly report.
- Payrolls growth accelerated to 1.3% in February compared to the same period a year ago, up from the 0.8% gain in January. The bank uses anonymized deposit data to assess monthly changes in customers receiving paychecks.
The big picture: The private data confirms strength in hiring last month, ahead of Friday's all-important government jobs report. But the indicators flag a concerning trend with workers' pay growth.
- The Bank of America Institute data shows wage growth among higher-income workers accelerated by 4.2% year-over-year in February, a large jump compared to their middle- and lower-income cohorts who saw wages jump by 1.2% and 0.6%, respectively.
- "The gap between higher-income wage growth and other cohorts is the largest it has been since the beginning of our data series," the bank said in its report.
- And there is "no widespread pay benefit from changing jobs," ADP notes, with the pay difference between job-switchers and job-stayers hitting a record low last month.
ADP's data showed that the smallest firms — those with 19 or fewer workers — were responsible for 58,000 of last month's job gains but "that has to be met with a bit of caution," Richardson told reporters.
- Pay gains among those workers was 2.6% compared to the prior year, suggesting that even if workers are getting jobs, the pay gains are not as high as in years past.
- "We're going from a source of job gains where pay was higher than inflation to — at least in this month — a source of job gains that seems to be a bit lower than the current level of inflation," Richardson said.
The bottom line: The data is, of course, backward-looking. The big question in the weeks ahead is whether employers see the Iran war as a new hiring risk, giving employers — those outside of health care — a new reason to sit on their hands.
- "Firms are really confronting that uncertainty," Richardson told reporters. "We saw choppy hiring in 2025 and will likely continue to see choppy hiring in 2026."
