February job losses driven by weather and health care strike, extending choppy trend

Executive summary

U.S. payrolls dropped 92,000 in February, badly missing the consensus expectation for a gain of 60,000. February was clearly impacted by a four-week health care strike of 31,000 workers and a pair of massive winter storms, while downward revisions carved off another 69,000 from the January and December tallies. Regardless, it yanked down the six-month average to -1,000.

Other trends within this report were mixed-to-down – wages increased, hours worked were flat, but the unemployment rate rose, which is a negative. Meanwhile, just two of the 11 major industry groups hired in February.

Alas, the “low hire/low fire” environment persists. We’ve described the U.S. economy as feeling like it has one foot on the gas (fiscal and monetary stimulus) and one foot on the brake (trade and tariff uncertainty, underwhelming job growth). This muddled backdrop likely keeps the Federal Reserve (Fed) in a holding pattern in the near term after last year’s pre-emptive rate cuts.

Payroll trends – Back-and-forth gain-loss trend continues

Payrolls have flipped between gains and losses for the past nine months. There has been a laundry list of reasons for the weakness; most prominently, the mammoth shift in trade policy and tariffs and two partial government shutdowns. In February, it was wicked weather—Winter Storm Fern in late January with prolonged power outages and Winter Storm Hernando in mid-February along with an epic deep freeze—and a four-week health care strike that furloughed 31,000 workers in California and Hawaii.   

Both service-providing industries and goods producers shed workers in February, cutting 61,000 and 25,000 jobs, respectively. Likewise, both private and government payrolls declined during the month, -86,000 and -6,000, respectively.

A review of the major industry trends

The biggest surprise was sheer dearth of hiring across the economy as just two of the 11 major industry groups increased payrolls in February. Conversely, the largest job creation was within financial services, which has been a net job loser in the recent past, cutting 33,000 in the past year. It added 10,000 positions during the month – the most in a year.

The second biggest surprise was job loss within education/health services industry group. More specifically, the health care sub-sector, which has had a nearly unblemished record since 2022 – with just one negative month over that 49-month span. Moreover, roughly 90% were within health care, which remains the U.S. economy’s proverbial bell cow.

Leisure & hospitality had the next largest job losses. Hotels, restaurants and bars were the primary culprits, though that’s generally consistent with their typical seasonal trends. Arts, entertainment, and recreation actually hired 7,600 workers. 

Professional & business services posted a modest loss in February. Most of the weaknesses were temporary help services, which shed 6,500 workers during the month. Also, it was part of the downward revisions as its December gains were wiped out, instead becoming losses (-19,000).

Unemployment rate rose, but hours worked and wages were also up

The unemployment rate rose to 4.4%, rising by 0.1. It remains above the pre-pandemic 3-year average of 4.0%, although it remains low compared to the historical average of 5.7% since 1948.

Interestingly, the broader underemployment rate (U-6) fell again in February, slipping to 7.9%, which is a tick above the pre-pandemic 3-year average of 7.8%. It has declined sharply over the past few months, from 8.7% in November.

Average weekly hours worked were unchanged at 34.3, which is a tick below the pre-pandemic average of 34.4. Within manufacturing, hours worked fell by 0.1 to 40.1, while overtime hours were unchanged at 3.0, where it’s largely been for the better part of three years.

Average hourly earnings rose by 0.4% month over month, slightly above the pre-COVID three-year average. That pushed annual wage growth up to 3.8% for all workers, which remains well above the pre-pandemic average of 3.0%.

Wages for rank & file workers—officially known as production & nonsupervisory employees—rose 0.3% during the month, although the annual average remained at 3.7%. Still, that’s well above the pre-pandemic average of 3.0%.

Our take

Yes, there were legitimate reasons for February’s weakness. There were also valid reasons for the sloppy 2025 trends. However, those reasons don’t change the back-and-forth gain-loss trend of the past nine months.

Under normal circumstances, such clear labor market weakness would typically equate to a greater likelihood to lower rates by the Fed. But nothing in 2025 was normal, especially the inflation trend. 

While we aren’t overly concerned, the direction of inflation has clearly shifted and is no longer grinding lower. Indeed, in our 2026 outlook, we anticipated that inflation would remain stickier. Indeed, in recent months, inflation has risen on both the consumer and wholesale fronts. The new Iranian conflict threatens to inflame inflationary pressures. 

If this inflation trend persists, it will pose a rather large hurdle for the Fed to lower interest rates later this spring. At the very least, it would push rate cuts further back in the year. In a worst-case scenario, if inflation continues heating up – it could thwart rate cuts all together in 2026. However, it’s very premature to make that leap based on the current trend. Given the near-term uptick in inflation and the risk for more, we expect the Fed to stay on hold in the near term and maintain our view for a summer rate cut.

Lastly, in response to questions involving the role of Artificial Intelligence (AI) in the inconsistent hiring – our answer is “not yet.” We find very little credible evidence that AI is causing job losses (yet).

While there has been a real spurt in productivity, we believe that is mostly the result of the post-COVID Great Resignation, whereby millions of workers caused a massive skill resorting across the economy. While it takes a few months for entry-level workers to get up to speed, it takes much longer for mid-career knowledge workers to hit their stride—perhaps 6 to 8 quarters or longer. That lines up with the burst of productivity that began mid-2023 and has persisted through 2025.

Yet, many companies are using AI as cover for recent layoffs. Perhaps it’s the corporate response to other post-COVID employment trend – “quiet quitting.”

Bottom line

U.S. payrolls fell sharply in February, amid a major health care strike, severe winter weather, and sizable downward revisions, pulling the six‑month average into negative territory. Labor market signals were broadly weak—most industries cut jobs, unemployment rose, and hiring was scarce—though wages continued to grow and hours held steady, reflecting a continued “low hire/low fire” environment. However, given the near-term uptick in inflation and the risk for more, the Fed stays on hold in the near term.