Hiring in February was surprisingly weak — complicating the path to interest rate cuts by the Federal Reserve as the conflict in Iran reheats inflation fears.
US employment declined by 92,000 in February — a sharp slowdown from an increase of 126,000 in January and far below estimates of an added 50,000 jobs, the Bureau of Labor Statistics said Friday morning.
The unemployment rate ticked up to 4.4%, from 4.3% the previous month, according to government data.
“After lackluster job gains in 2025, the labor market is coming to a standstill,” Jeffrey Roach, chief economist for LPL Financial, said in a note Friday.
“I don’t expect the Fed to act sooner than June, but if the labor market deteriorates faster than expected, officials could cut rates on April 29.”
Meanwhile, January’s surprisingly strong report was likely helped by a few one-time factors, like slower holiday hiring at the end of last year — meaning fewer layoffs were necessary at the start of 2026.
The Dow Jones Industrial Average tumbled 450 points, or nearly 1%, Friday, while the S&P 500 and Nasdaq fell more than 1%.
Investors had been banking on a solid jobs report — but instead the weak numbers piled on top of inflation fears amid the ongoing conflict in Iran.
National average gasoline prices soared to $3.32 a gallon, according to AAA, as Tehran cut off a vital maritime route for 20% of the world’s oil — and economists warned energy shocks could cause a broader ripple effect across consumer prices.
Employment declines were felt across several industries, led by health care, which lost 28,000 jobs in February — largely due to a nurses’ strike in California and Hawaii that saw 31,000 workers walk out.
Federal government employment declined by 10,000 in February, continuing to shed jobs after Elon Musk’s Department of Government Efficiency slashed government roles and foreign aid in early 2025.
Since reaching a peak in October 2024, federal employment is down by 330,000 jobs, or roughly 11%, according to the Bureau of Labor Statistics.
Wage growth remained strong at 3.8% over the year, while the share of people in their prime working years who were either employed or looking for work dipped to 83.9%.
The number of long-term unemployed people — out of work for 27 weeks or more — hit 1.9 million in February, or roughly 1 in 4 of the unemployed. That’s a sizable jump from 1 in 5 unemployed people in March 2023.
Revisions lowered January and December payrolls a combined 69,000 jobs.
US employers have been stuck in a mode of low hiring — but also low firing — for months as they wait to see the full effects of Trump’s tariffs play out across the economy.
Now these employers are also dealing with heightened uncertainty around the joint US-Israeli airstrikes in Iran, and Tehran’s brutal retaliation throughout neighboring regions — potentially disrupting the global oil supply and adding to price pressures.
Meanwhile, the Trump administration’s deportation efforts have likely resulted in a smaller labor pool — causing confusion around whether weak job growth is the result of less demand, fewer available workers or both.
February’s job report is likely to stoke further division among Fed officials ahead of their next meeting March 17-18.
Some have argued that they are willing to lower rates further after three reductions last year to support the labor market, while others want to hold off over fears that inflation could spike.
Traders priced in more than 95% odds that the Fed will keep rates in the current 3.5% to 3.75% range at the March meeting, according to CME FedWatch, which tracks 30-Day Fed Funds futures prices.
