February Jobs Report: Relentless

The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor’s Chief Economist Aaron Terrazas.

For months, economists have been predicting that the jobs market would cool, and for months they have been wrong. Cue repeat for February. The February jobs report came in with strong overall payroll gains, but the unemployment rate also moved sharply higher. After a string of exceptionally strong labor market reports that threatened to derail an expected easing of monetary policy over the months ahead, today’s data will be a warning flag for anyone concerned that there is still too much inflationary pressure across the U.S. economy to merit lower interest rates.

Payroll Growth Accelerates on Downward Revisions

Payroll employment accelerated, growing by 275,000 in February from a downwardly revised 229,000 in January (initially reported as 353,000). December payrolls were also revised sharply lower, suggesting that the labor market over the previous two months was still strong, but not as extraordinarily strong as believed in real time.

Job gains were driven by perennially business-cycle agnostic sectors like healthcare (+67,000 jobs added) and government (+52,000). Healthcare gains were above trend, while public sector job gains were in line with recent months.

There were surprises too, however. Restaurant and bar (“food services and drinking places”) saw payroll gains of +42,000, after three months of effectively flat employment – an unseasonably large gain in spite of recent minimum wage increases that many feared would be a headwind to job growth in the sector.

Unemployment Rate Higher After January Layoffs

The unemployment rate increased sharply to 3.9 percent in February – the highest unemployment rate since January 2022. January layoffs and a softening hiring market for highly skilled workers drove much of the increase, and the unemployment rate among young workers (age 20-24) increased by 1.3 percentage points from January -- one of it's biggest monthly moves over the past decade.

The headline participation rate was flat for a third consecutive month, and appears to have plateaued after reaching all-time highs last summer. However, the prime-age participation rate (age 25-54) ticked higher from 83.3% to 83.5%, matching all-time highs.

Wage Growth Slows

Average hourly earnings slowed to 4.3% year-over-year in February, down from 4.5% in January but still far from the 2%-3% range that is assumed to be consistent with a neutral labor market.

Conclusion

For many market watchers today’s data will feel like deja vu, and they’ll likely look past the increase in the unemployment rate as a transitory shock to the jobs market after headline layoffs in January. Payroll gains remained exceptionally robust despite downward revisions to the previous two months – and the industry distribution of job gains suggests that it remains very much a seller’s market for braun while it’s increasingly a buyer’s market for brains.

More Insights

Job gains beat expectations again with 275,000 jobs added in February. December and January were revised downward, smoothing job gains in the last 3 months. New seasonal patterns may be making measured jobs growth in January and February look better, but overall, jobs growth is still in a healthy range.

Jobs growth was powered by health care, government and leisure & hospitality in February.

Healthcare, government and education have accounted for about 3 in 5 (59%) jobs added so far in 2024, continuing a trend from 2023.

Healthcare, education and government are growing at rates above their 2019 averages. Leisure & hospitality is also contributing significantly to jobs growth, but at rates similar to 2019.

Average hourly earnings grew 4.3% year-over-year, down from 4.4% in January. Wage growth spiked in January, though likely due to some combination of noise or weather. On a 3-month annualized basis, wage growth is down to 4%.

The unemployment rate rose to 3.9% in February, a warning sign flashing yellow. While the unemployment rate remains at relatively low levels historically, it has climbed from its cycle low of 3.4% in April 2023.

The rise in unemployment was in part due to a rise in permanent layoffs. While the unemployment rate overall remains low, permanent layoffs as a share of unemployment rose to the highest since 2021.

Labor force participation, however, remains strong with prime-age (25–54) labor force participation rising to 83.5% in February, close to its 2023 peaks which were the strongest levels since 2002.

The prime-age employment-population ratio is still a touch below their 2023 peaks, reflecting the modest rise in unemployment.

Black and Asian unemployment rates ticked up in February, though this was largely due to the expanding labor force as more Black and Asian workers joined the work force but not all of them were able to find jobs. Both groups did, however, see their employment-population ratios rise in February.