U.S. payrolls unexpectedly fell by 92,000 in February; unemployment rate rises to 4.4%

The U.S. economy lost jobs in February, a month marred by severe winter weather and a strike at a major health care provider, the Bureau of Labor Statistics reported Friday.

Nonfarm payrolls fell by 92,000 for the month, compared to the estimate for 50,000 and below the downwardly revised January total of 126,000. February marked the third time in the past five months that payrolls declined, following a sharp revision showing a drop of 17,000 in December.

At the same time, the unemployment rate edged higher to 4.4% as jobs declined across key areas. A broader measure of unemployment that includes discouraged workers and those holding part-time positions for economic reasons moved lower, at 7.9% or 0.2 percentage point below the January level.

Health care, the primary growth driver in payrolls, saw a loss of 28,000 due largely to a strike at Kaiser Permanente that sidelined more than 30,000 workers in Hawaii and California. Though the strike has since been resolved, it occurred during the BLS survey week so it subtracted from the jobs total.

While the jobs picture was weak, wages rose more than expected. Average hourly earnings increased 0.4% for the month and 3.8% from a year ago, both 0.1 percentage point above forecast.

“I think it just tells us that the hopes that the labor market was steadying, maybe that was too much,” Mary Daly, president of the Federal Reserve Bank of San Francisco, told CNBC. “We also have inflation printing above target and oil prices rising. How long they last, we don’t know, but both of our goals are in our risks now.”

Federal Reserve officials consequently have taken a cautious approach to policymaking following a series of interest rate reductions. Most central bankers have advocated a wait-and-see approach as they watch both the impact of the rate cuts and geopolitical factors such as tariffs and the Iran war.

Following the payrolls report, traders pulled forward expectations for the next cut to July and priced in a greater chance of two cuts before the end of the year, according to the CME Group’s FedWatch gauge of futures market pricing.

Fed Governor Christopher Waller said earlier in the morning that a weak jobs report could impact policy. Waller has been in the minority of Federal Open Market Committee members pushing for cuts soon.

“If we get a bad number, January’s revised down to some really low number ... the question is, why are you just sitting on your hands? So I could certainly see this meeting going other way, depending on the data this week and [how] the [consumer price index] next week comes in,” Waller said on Bloomberg News.

The survey of households, which is used to calculate the unemployment rate, showed an even weaker economic picture. That portion of the report indicated a drop of 185,000 in those reporting at work and a rise of 203,000 in the unemployment level. The labor force participation rate edged lower to 62%, its lowest since December 2021.