Job Growth Begins to Cool

​U.S. employers added 311,000 jobs in February, down from 504,000 in January but still above economists' expectations, while the unemployment rate rose to 3.6 percent, according to the latest employment report from the U.S. Bureau of Labor Statistics.

The Federal Reserve is closely monitoring the jobs report as it decides how much to raise interest rates to tame inflation. Despite widely publicized layoffs in recent weeks, the U.S. labor market remains surprisingly resilient after eight interest-rate hikes meant to slow down the economy. Many observers had expected job gains would cool sharply or even turn into losses by now, but that has not happened. Federal Reserve Chair Jerome Powell told lawmakers this week that interest rates would likely have to be raised again this month, which could eventually harm job creation.

"The job market continues to be the bright spot of the U.S. economy and reflects continued business confidence that the country is not tipping into recession," said American Staffing Association (ASA) President and CEO Richard Wahlquist. "Despite a series of historic interest-rate hikes, a remarkable number of new jobs were created in February."

"Compared to January's red-hot report, hiring cooled slightly and unemployment saw a small uptick from its 54-year bottom," said Geno Cutolo, head of Adecco North America. "Still, demand for talent continues to outpace available roles, meaning this is very much a candidate's market. This report aligns with what our team is seeing in the field, as talent continues to be in high demand." 

Talent is still scarce, said Becky Frankiewicz, president for North America and chief commercial officer at ManpowerGroup. "The BLS report is a look in the rearview mirror, and right now we are seeing overall hiring demand across the U.S. slowing significantly—by 42 percent—between January and February. This is a clear caution sign, but not a red light," she said.

Aaron Terrazas, chief economist at Glassdoor, said it's no longer accurate to say without reservation that the labor market is the glowing feature in the economy. "From 35,000 feet, the picture still looks sterling, but digging an inch beneath the surface, there are clear pockets of softening," he said. "Hiring and wage pressure remains the dominant force for many frontline service and skilled vocational roles, but there is growing evidence that hiring has eased sharply in risk-intensive sectors."

The labor market can't defy gravity indefinitely, as interest rates have moved sharply higher over the past year, Terrazas said. "Today's jobs data pushed out that inevitability yet another month," he noted.

But overall, as things sit now, the report suggests robust job growth paired with easing inflationary pressures, said Julia Pollak, chief economist at ZipRecruiter. She added that "employers have much to celebrate too, with participation picking up. As the number of Americans actively seeking work increased by 242,000 in February, the ratio of job openings to unemployed workers ticked downwards to 1.8."

Industry Breakdown

Pollak said that after several months of unusually broad-based job gains, job growth became more concentrated in customer-facing industries in February. "That indicates that the impact of high interest rates is spilling over to more industries," she said.

Leisure and hospitality led employment gains, with an increase of 105,000 jobs. Restaurants and bars accounted for 70,000 of those jobs, and employment continued to trend up in accommodation (14,000 new jobs).

"Not surprisingly, leisure and hospitality once again saw the biggest gains in February, as the industry continues to edge its way up to pre-pandemic levels," Cutolo said. "Other industries that were the most negatively impacted by the pandemic, such as construction, continued to rebound and were major contributors to February's growth."

Employment in leisure and hospitality is still below its pre-pandemic level by 410,000 jobs. Retail saw a gain of 50,000 jobs, while government added 46,000 and professional and business services saw an increase of 45,000.

Health care added 44,000 jobs, and construction employment also continued to grow, by 24,000, despite tentative signs of a slowing housing market, Terrazas said. 

"The information and finance industries posted job losses, as did computer systems and design and advertising," he said. "These are among the industries most likely to be vulnerable to a rising interest-rate environment and have seen employment trend lower in recent months."

The transportation and warehousing sector saw payroll declines of 21,500. "February is typically a soft month for transportation hiring, as the sector winds down from holiday-related e-commerce and return season," Terrazas said. "State and local education employment fell by 4,300 jobs as some school districts started to grapple with tax revenue shortfalls from slowing consumer spending."

Pollak said that as wage growth eases and job seekers prioritize job security, it is becoming easier for the public sector to fill open positions. However, it still has a shortfall of 376,000 jobs, she said.

Manufacturing lost 4,000 jobs last month. Frankiewicz said that "manufacturing is one to watch," adding that "declines there and in ops and logistics could impact blue-collar workers as the year progresses."

Wahlquist said the number of temporary workers increased in February, and ASA members continue to report healthy demand across many sectors. "However, staffing agencies are telling us that the pace of demand has slowed somewhat and that clients are more selective about the candidates they're bringing on board to fill both flexible and permanent positions," he said.

Unemployment Goes Up

The unemployment rate increased by 0.2 percentage points in February, but is still historically low.

"The unemployment rate continues to hover just above its lowest level in over five decades," Terrazas said. "However, the number of recently unemployed—those unemployed for five weeks or less—increased by 343,000 from January, the largest increase in over a year and the third-largest increase since the start of the pandemic."

A more encompassing unemployment measure that includes discouraged workers and those holding part-time jobs for economic reasons rose to 6.8 percent.

The labor force participation rate rose to 62.5 percent from 62.4 percent. "Concerns about labor supply have been pervasive during this recovery, but this new data should ease some nerves," said Nick Bunker, economic research director for North America at the Indeed Hiring Lab. "The prime-age labor force participation rate jumped in February and is now slightly above its early 2020 levels. The story is similar for the share of those prime-age workers with a job, which now sits at 80.5 percent. Three years after the last pre-pandemic jobs report and this core demographic group is back to work. Of course, there are still structural concerns about labor supply, but the current rebound suggests that strong demand can continue to pull people back into work."

Pollak said the prime-age employment-to-population ratio has now more than fully recovered for women, likely due in large part to an enduring increase in remote and flexible work.

Wage Growth Moderates

Wage gains have shown signs of cooling but remain well above their pre-pandemic pace.

Average hourly earnings rose 4.6 percent over the prior year in February, an increase from January's 4.4 percent jump but slightly below forecasts.

"Average hourly earnings for all workers grew at a 3.6 percent annualized rate over the past three months, a speed that, while still high, is more consistent with moderating inflation," Bunker said. "Wages continue to grow rapidly in many sectors, but the overall trend is suggesting that wages can slow without a spike in unemployment. If wages continue to grow around its current rate or even a bit higher, the labor market may be able to stay strong and not throw gas on the inflation fire."