US Job Growth Cools Sharply
The U.S. private sector labor market is showing signs of a slowdown, adding just 63,000 jobs in February. More striking, January's figure was revised down to a paltry 11,000. Despite the hiring slump, wage growth remains firm at 4.5% annually. The one bright spot is the services sector, where activity just hit a 3.5-year high, suggesting a clear split in the economy.
The February jobs number, while the strongest since July 2025, shows a significant slowdown from the robust hiring seen in previous years. The concentration of gains in just a few sectors, primarily education/health services (+58,000) and construction (+19,000), masks weaknesses elsewhere, such as the 30,000 jobs shed in professional and business services and 5,000 lost in manufacturing. This private payroll data, compiled by ADP, often precedes the official Bureau of Labor Statistics (BLS) report and the two can diverge significantly. For instance, the ADP initially reported a mere 22,000 jobs for January before its downward revision, whereas the BLS later reported a much stronger 130,000 job gain for that same month. Economists are now watching to see if the official government data, due Friday, will align with this cooling trend, with consensus estimates predicting a modest 50,000 job gain. Despite the hiring slowdown, wage growth for job-stayers is holding at 4.5% annually. With the latest Consumer Price Index reading for January at 2.4%, this indicates a real wage increase of approximately 2.1% for those who remained in their roles, providing some cushion against inflation. However, the incentive for switching jobs is diminishing, as the pay premium for job-changers has fallen to a record low, according to ADP's chief economist, Nela Richardson. The clear outlier remains the services sector, which represents the vast majority of the U.S. economy. The Institute for Supply Management's services index jumped to 56.1 in February, its highest level since August 2022. Fourteen service industries reported growth, including healthcare, finance and insurance, and wholesale trade. This mixed labor data is unlikely to prompt immediate action from the Federal Reserve. Following a pause at their January meeting, markets are pricing in a 98% probability that the central bank will hold its benchmark interest rate steady in the current 3.5% to 3.75% range at their next meeting on March 18. Most analysts, including those at J.P. Morgan, do not anticipate a rate cut until the summer at the earliest.
