Economic Commentary

Executive summary

U.S. payrolls increased by 151,000 in February, modestly below consensus expectations for 160,000. After revisions to the prior two months, the six-month average rose to 190,700, climbing back above the pre-COVID three-year average of 177,000.

While the headline figures were mostly solid, there were some ripples below the surface. The unemployment rate ticked higher, labor force participation slipped, hours worked remain near their pandemic low point, and wage growth cooled. Moreover, we don’t believe federal job cuts targeted by the new administration have materialized yet; thus, there’s likely to be a headwind from federal job losses in the coming months.

More importantly, the U.S. economy is all about private payrolls, which have stabilized following a series of events in the autumn months and even reaccelerated a bit recently. Ultimately, this report reflects a solid U.S. economy buoyed by resilient consumers. This report will likely also support the Federal Reserve (Fed) maintaining a ‘wait & see’ approach to additional rate cuts in the near term.

Our Take

The U.S. economy had been incredibly solid in the face of repeated punches from extreme weather, including hurricanes and union strikes during the autumn months, and winter storms, frigid temperatures, and the wildfires more recently.

But, if those aren’t enough to cause noise in the economic data, the uncertainty from the changes emanating from the new administration definitely have been – from tariffs and trade deals to Ukraine and DOGE. Each of these has added to uncertainty and clouds decision making for businesses. Indeed, based on our conversations, businesses desperately want these trade issues to be resolved quickly. In fact, a sizable portion basically said, “even if tariffs are increasing – just tell us, but don’t hopscotch from one day to the next,” which would allow them to adjust and move forward.

Accordingly, this report reflects an economy that’s chugging along with steady growth, but the uncertainty is increasingly a headwind. Alas, we see the Fed maintaining the ‘wait & see’ approach to additional rate cuts in the near term.