U.S. Unemployment Rises as Job Growth Falters in February

The U.S. labor market showed unexpected weakness in February, with rising unemployment highlighting a slowdown in job creation and complicating the Federal Reserve’s policy outlook. Nonfarm payrolls declined by 92,000 jobs, far below expectations for a modest gain. Revisions to prior months also reduced reported payrolls by 69,000, mostly affecting December.


Over the past three months, nonfarm payrolls have averaged just 6,000 new jobs per month, well below the twelve-month average of 24,000, signaling a gradual cooling in the labor market.


The private sector led the decline, shedding 86,000 jobs after strong gains in January. Health care and social assistance saw the largest drops, partly due to a strike in physician offices, while weather-sensitive sectors such as construction and leisure & hospitality also recorded losses. Smaller declines appeared in manufacturing, information, and professional & business services. Federal employment eased modestly, with 10,000 fewer jobs than the prior three-month average of 18,000.

The household survey reported an increase of 203,000 unemployed, pushing the unemployment rate up to 4.4%. Updated population controls better aligned labor force data with census estimates, although historical data prior to 2026 were unchanged.


Despite weaker job growth, wage gains remained strong. Average hourly earnings rose 0.4% month-on-month and 3.8% year-on-year, reflecting persistent inflationary pressure in the labor market.


While February’s payroll report was disappointing, some of the weakness is attributed to temporary factors such as the health care strike and poor weather conditions affecting hiring in construction and leisure sectors. Broader labor measures provide a mixed picture: the U-6 unemployment rate, which includes part-time workers seeking full-time work, fell to a seven-month low of 7.9%.


From a policy perspective, the slowdown does not drastically alter the Fed’s outlook. Wage growth and persistent inflation remain key concerns, particularly amid rising oil prices driven by geopolitical tensions in the Middle East. Markets currently price the first interest rate cut around September, with further easing uncertain.


Overall, the February data show a labor market losing momentum, but not fast enough to alleviate inflationary pressures. The path of U.S. interest rates will continue to depend closely on upcoming employment and price data.