Construction workers install a lumber roof at a new home build in Laveen, Ariz., in April, 2025.Ross D. Franklin/The Associated Press
The U.S. economy unexpectedly lost jobs in February and the unemployment rate increased to 4.4 per cent, potentially hinting at a deterioration in labour market conditions that could put the Federal Reserve in a difficult spot amid rising oil prices.
The decline in nonfarm payrolls reported by the Labour Department in its closely watched employment report on Friday was the sixth since January, 2025 and the second largest. Part of the drop in employment last month reflected a strike by health care workers and a winter storm that weighed on construction as well as leisure and hospitality payrolls.
Economists also viewed the plunge as payback after a large increase in January payrolls that they said was flattered by an upgrade to the so-called birth-and-death model, which the government uses to estimate how many jobs were gained or lost because of companies opening or closing in a given month.
Even accounting for those factors, economists said February’s employment report challenged the U.S. central bank’s narrative that the labour market was stabilizing. Economists saw a downside risk to the labour market from a prolonged war in the Middle East, which is driving up oil prices and causing stock market volatility.
The labour market stumbled in 2025 amid what economists said was uncertainty stemming from President Donald Trump’s sweeping tariffs, which he pursued under a law meant for use in national emergencies. Though the import duties were struck down by the U.S. Supreme Court, Trump responded to the ruling by imposing a 10-per-cent global tariff and later announced it would rise to 15 per cent.
“It’s bad news whichever way you look at it,” said Olu Sonola, head of U.S. economics at Fitch Ratings. “Add renewed tariff noise, higher energy prices and fresh inflationary impulses, the Fed is basically a deer in the headlights until these numbers settle into a sustainable, actionable trend.”
Nonfarm payrolls decreased by 92,000 jobs last month after a downwardly revised 126,000 increase in January, the Labour Department said. Economists polled by Reuters had forecast payrolls advancing by 59,000 jobs after increasing by a previously reported 130,000 in January.
Estimates ranged from a loss of 9,000 jobs to an increase of 125,000 positions. While some economists cautioned against putting too much emphasis on one month’s report, the trend in job growth has weakened, with gains averaging only 6,000 per month in the three months through February from 50,000 in the three months through January.
“This is going to make it harder for the Fed to sell the labour market stabilization narrative that’s been used to justify patience on further rate cuts,” said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management.
Economists still expected the Fed to keep its benchmark overnight interest rate in the 3.50-per-cent to 3.75-per-cent range at its March 17-18 meeting. But the odds of a June rate cut have increased. The decline in payrolls last month reported in the establishment survey was nearly across the board and was led by the health care sector, which shed 28,000 positions following a large increase of 77,000 in January.
Employment at physicians’ offices dropped by 37,000 jobs, mostly reflecting a strike by 31,000 health care workers at Kaiser Permanente and inclement weather. The strike in California and Hawaii has since ended. The health care sector has been the main driver of job growth.
Employment in the information sector dropped by 11,000, while the federal government shed another 10,000 jobs. Federal government employment has declined by 330,000, or 11.0 per cent since peaking in October, 2024 as the White House continues with its unprecedented push to shrink the government’s footprint.
Transportation and warehousing payrolls dropped by 11,000, weighed down by job losses among couriers and messengers. Construction employment decreased by 11,000, with residential specialty trade contractors accounting for most of the drop.
Leisure and hospitality payrolls dropped by 27,000, the bulk of the decrease coming from restaurants and bars. Heavy snow and frigid temperatures across large parts of the country likely kept patrons at home. But the inclement weather argument is challenged by the length of the workweek, which averaged 34.3 hours, unchanged from January. In addition, 228,000 people reported they could not report for work in February because of bad weather, only slightly up from 218,000 in January.
There were also job losses in professional and business services as well as manufacturing, which shed 12,000 jobs. Despite Trump’s emphasis on restoring domestic manufacturing jobs through measures like tariffs, factory employment has now fallen in all but one month since his return to the White House.
A handful of sectors, including social assistance and financial activities, eked out gains. The share of industries reporting job growth fell to 50.8 per cent from 54.6 per cent in January.
But there was some good news for households.
Average hourly earnings rose 0.4 per cent after a similar gain in January. In the 12 months through February, wages increased 3.8 per cent after advancing 3.7 per cent in January.
Solid wage growth should help to underpin consumer spending, though rising gasoline prices pose a challenge.
Stocks on Wall Street were trading lower. The dollar slipped against a basket of currencies. U.S. Treasury yields fell. The BLS incorporated the delayed new population controls in the household survey based on updated estimates from the Census Bureau, which showed slower population and labour force growth, partly due to weaker net immigration amid a crackdown by the Trump administration.
The civilian noninstitutional population was revised down by 231,000, while the labour force and employment levels were each revised lower by about 1.4 million. The revisions only affected January household survey data. January’s labour force participation rate was downgraded to 62.1 per cent from 62.5 per cent.
The participation rate fell to 62.0 per cent in February, the lowest level since December, 2021. Household employment dropped 185,000, accounting for the increase in the unemployment rate from 4.3 per cent in January.
“With labour force growth now running materially weaker, the labour market is operating with a much thinner supply buffer which raises the risk that wage pressures remain sticky even as demand cools,” said Gregory Daco, chief economist at EY-Parthenon.