Employment report February 2024

Less noise but some mixed signals from the labor market 

  • The February jobs report indicates job growth remains on a strong trajectory with nonfarm payrolls rising 275,000 jobs, above consensus expectations, following a downwardly revised 229,000 gain in January. But beneath the strong headline print, prior estimates of job growth in December and January were revised down by a cumulative 167,000 jobs, the unemployment rate rose to a two-year high of 3.9% and wage momentum cooled, pointing to non-inflationary dynamics.

  •  Job gains remained broad-based in February with the private sector adding 223,000 jobs — the largest increase since May 2023 — and the government sector adding 52,000 jobs. Health care and leisure and hospitality drove most of the increase in the services sector while pockets of softness were visible in a few sectors including professional and business services and information. Employment in the goods sector rose 19,000 jobs on gains in construction.

  • The unemployment rate jumped to 3.9% in February, its highest level since January 2022 while the labor force participation rate remained unchanged at 62.5% for a third straight month. Encouragingly the prime-age labor force participation rate rose 0.2 percentage point (ppt) to 83.5%, matching its highest level since the early 2000s.

  • Wage pressures eased with hourly earnings rising a soft 0.1% month over month (m/m), partly reflecting the 0.3% m/m rebound in hours worked as the January weather impact faded. As a result, wage growth fell 0.1ppt to 4.3%, a pace roughly unchanged over the past five months. As labor demand and supply continue to rebalance, we see wage growth easing further and converging toward 3.5% this year — a pace roughly consistent with the Fed’s 2% inflation target.

  • Fed officials will likely find some comfort in the more benign wage reading and the apparent loosening in labor market conditions, but the still strong pace of job creation will reinforce recent Fed’s messaging that there is no rush to begin cutting interest rates. Given the fact that most policymakers have retained a hawkish bias in their recent communication, we now see the policy easing cycle starting in June, rather than a May onset, and continue to expect the Fed will proceed with 100 basis points of cuts this year.

  • Unlike the January jobs data, we see the February data as carrying more signal than noise with the overall picture being one of a still robust but loosening labor market. Looking forward, we continue to anticipate a mild softening of labor demand in the coming months. This will mostly come in the form of reduced hiring, strategic resizing decisions and wage growth compression. We see the unemployment rate rising toward 4.2% by year-end. 

In the details

Employment growth in February remained broad-based with the employment diffusion index — a measure of how many private sector industries are adding jobs — rising slightly to 62.6% and remaining close to its highest level in a year. The private sector added 223,000 jobs last month — the largest increase since May 2023 — and the government sector added 52,000 jobs. Factoring the downward payroll revisions in December and January, the private sector added an average of 205,000 jobs over the past three months.

 

Looking into the details, health care and social assistance remained a key engine of job creation, adding 91,000 jobs, as the sector continues to see strong labor demand amid lingering shortages of health care practitioners. In February, employment continued to trend up in hospitals (+28,000) while hiring in ambulatory health care services (+28,000) and nursing and residential care facilities (+11,000) maintained a steady pace of growth.

 

Leisure and hospitality employment saw a marked rebound as the sector added 58,000 jobs in February, the most since June 2023. The increase was driven by stronger hiring in food services and drinking places (+42,000). Retail employment posted another solid increase, up 19,000 jobs, driven by general merchandise stores (+17,000), and transportation and warehousing employment rose 20,000 on a rebound in courier and messengers (+17,000).

Government hiring remained a driving force of labor market strength. In February, the sector added 52,000 jobs led by solid hiring in local government (+38,000).

 

The report also contained a few blemishes. Professional and business services posted a weak 9,000-payroll increase — below the average 21,000 gain in the prior three months — with temp employment (-15,000) contracting for a 23rd month. There were also signs of softness in the information (+2,000) and finance (+1,000) sectors.

On the goods front, the 19,000 increase was entirely driven by construction employment, which rose by 23,000 jobs, as manufacturing payrolls fell by 4,000. 

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.