February Payrolls Report Could Expose Cracks in U.S. Labor Market

February Jobs Report to Offer Key Insight on Labor Market Stability

Investors are closely watching the February nonfarm payrolls report, set for release on Friday, as mixed labor market signals add to concerns over inflation and economic growth. While core employment data remains solid, increasing layoffs and weakening sentiment indicators suggest potential cracks beneath the surface. Economists surveyed by Dow Jones expect payrolls to rise by 170,000, up from January’s 143,000, with the unemployment rate holding at 4%.

Conflicting Labor Market Signals

Traditional labor market indicators, such as payroll growth and unemployment levels, continue to suggest stability. The jobless rate remains at 4%, historically associated with full employment. However, alternative data, including consumer and jobseeker sentiment surveys, indicate growing uncertainty. Workers are reportedly less willing to switch jobs, while job seekers find it harder to secure employment.

At the same time, corporate layoff announcements surged in February, with Challenger, Gray & Christmas reporting the highest level of job cuts since July 2020. A significant portion of these reductions stemmed from the Department of Government Efficiency’s (DOGE) federal workforce cuts, estimated at over 62,000. While these layoffs are not expected to immediately impact Friday’s report, they could have broader economic consequences in the months ahead.

Consumer Confidence and Market Implications

A sharp drop in consumer confidence, as reported by the Conference Board, adds to concerns about labor market stability. Survey respondents expect job availability to decline and hiring to slow. Economists warn that negative sentiment can have a self-fulfilling effect, discouraging job-seeking and hiring activity.

Goldman Sachs estimates that the DOGE-related layoffs will subtract only about 10,000 jobs from February’s payrolls figure, with minimal impact from weather disruptions. The bank maintains that job creation remains firm, supported by catch-up hiring and recent immigration-driven labor force expansion. Wage growth is also expected to remain steady, with average hourly earnings projected to rise 0.3% for the month, up 4.2% year-over-year.

Tariff Concerns Cloud the Outlook

Friday’s report will provide the final labor market snapshot before the economic impact of newly imposed tariffs begins to materialize. Economists expect these tariffs on Canada, Mexico, and China to slow growth, increase inflationary pressures, and trigger layoffs in affected industries. S&P Global estimates that the tariffs could push the unemployment rate up by 0.2 percentage points.

Market Outlook

The February jobs report is expected to show continued resilience, with steady payroll growth and stable unemployment. However, mounting layoffs, weaker job seeker confidence, and the potential economic fallout from tariffs could weigh on future job market strength. If upcoming reports confirm hiring slowdowns or increased layoffs, markets may need to reassess expectations for economic growth and Federal Reserve policy.

More Information in our Economic Calendar.