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The U.S. labor market unexpectedly shed jobs in February, signaling potential cracks in the economy as policymakers grapple with rising energy prices and global instability.
Employers cut 92,000 jobs last month, according to data released Friday by the U.S. Department of Labor, marking a sharp reversal from earlier forecasts that predicted job growth.
The unemployment rate rose to 4.4%, up slightly from 4.3% in January, the report showed.
Economists surveyed by FactSet had projected that the U.S. economy would add about 60,000 jobs in February, making the decline an unexpected setback for the labor market.
Third monthly decline in five months
February’s loss marks the third month in the past five in which the labor market has posted net job declines, raising concerns among economists that employment growth may be weakening after a period of resilience.
The report also revised earlier employment figures downward. Job gains for January were reduced by 4,000, while December payroll growth was revised down by 65,000, suggesting the labor market had been weaker than previously reported.
Financial markets reacted quickly to the news. U.S. stock futures slipped, while oil prices surged, partly due to escalating tensions in the Middle East following the outbreak of war between Iran, Israel, and the United States.
Health care job losses drag down hiring
Much of February’s employment decline was driven by job losses in the health care sector, which had been a consistent source of growth in recent years.
Health care employment fell by 28,000 jobs, which the Labor Department attributed largely to strike activity. A major nurses’ strike in California that stretched into early February disrupted staffing levels before ending late in the month.
Despite the temporary nature of some strike-related disruptions, economists say the broader employment picture now appears less stable than it did earlier this year.
“Recent labor market data had been pointing to resilience, but today’s sharply weaker reading raises the risk that a different picture could be in play,” said Seema Shah, chief global strategist at Principal Asset Management.
“Markets are being tugged in opposing directions, and this jobs report adds yet another layer of uncertainty to an already noisy backdrop,” Shah added.
Fed faces difficult policy decision
The weak jobs report could complicate decision-making at the Federal Reserve, which has been balancing efforts to maintain employment while keeping inflation under control.
Lower interest rates could help stimulate hiring and economic growth. But policymakers are also wary of fueling inflation, especially as energy prices climb amid the growing conflict involving Iran.
The Fed’s next policy decision is scheduled for March 18.
“Today’s numbers may have put the Fed between a rock and a hard place,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
“Significant weakening in the labor market would support a rate cut, but given the risk that higher-for-longer oil prices could trigger another inflation surge, the Fed may feel compelled to remain on the sidelines,” she said.
Housing market already feeling pressure
Rising inflation fears are already affecting other sectors of the economy.
Mortgage rates have recently climbed to around 6%, cooling activity in the housing market and raising borrowing costs for prospective homebuyers.
Economists say the trajectory of oil prices and the broader geopolitical environment could play a key role in determining whether the labor market stabilizes or continues to weaken in the months ahead.
