U.S. Private Hiring Slows Significantly
The U.S. private sector added only 63,000 jobs in February, a marked slowdown that fell short of expectations. While annual pay growth remains elevated at 4.5%, the cooling labor market supports the 'soft landing' narrative but may push the Federal Reserve to be more cautious.
The February job gains were highly concentrated in a few key areas. Education and health services led the way, adding 58,000 positions, while the construction sector also saw a notable increase of 19,000 jobs. This narrow growth suggests a selective, rather than widespread, hiring environment across the economy. Conversely, several sectors shed jobs, pointing to areas of economic weakness. The professional and business services sector saw a significant decline, losing 30,000 jobs, while manufacturing employment also dropped by 5,000. This divergence highlights a cooling in white-collar industries even as service and construction sectors expand. Small businesses were the primary engine of job creation in February, adding 60,000 employees to their payrolls. In stark contrast, medium-sized establishments reduced their workforce by 7,000, and large businesses added a modest 10,000 jobs. The incentive for employees to switch jobs has diminished significantly. While pay for job-stayers grew at a steady 4.5% annually, the wage growth for job-changers slowed to 6.3%. According to ADP's chief economist, the pay premium for switching employers has fallen to a record low. This labor market moderation occurred as the broader economy slowed. The U.S. economy expanded at an annualized rate of just 1.4% in the fourth quarter of 2025, a sharp deceleration from the 4.4% growth seen in the third quarter. The Personal Consumption Expenditures (PCE) price index, a key inflation gauge for the Federal Reserve, rose 2.9% in the fourth quarter of 2025. Core PCE inflation, which excludes food and energy, stood at 2.7%, remaining above the central bank's 2% target. At their January 2026 meeting, Federal Reserve officials described economic activity as expanding at a "solid pace" and inflation as "somewhat elevated." They decided to maintain the target range for the federal funds rate at 3.5% to 3.75%, emphasizing a data-dependent approach to any future adjustments.
