Jobs report surprise hits amid tariff war

The U.S. labor market is slowing over the first two months of the year.

Mar 7, 2025 - 15:04

Jobs report surprise hits amid tariff war

The U.S. economy added fewer-than-expected new jobs last month, while revisions of prior tallies suggest renewed labor-market weakness early in the year.

The Bureau of Labor Statistics said Friday that 151,000 new jobs were created last month, missing Wall Street's 163,000 forecast but higher than the downwardly revised January reading of 125,000. December's tally was revised to a gain of 323,000.

Average hourly earnings slowed in February, rising 0.3% from the previous month (following the biggest gain since March of 2022) and rose 4% on an annual basis. Both of the latest figures came in largely in line with Wall Street forecasts.

The headline unemployment rate edged higher to 4.1%, while the labor force participation rate slipped 0.2 percentage point to 62.4%.

Fed Chairman Jerome Powell will deliver a keynote address on the economy later today in New York.
Olivier Douliery/Bloomberg via Getty Images

“February’s weak jobs report presents a challenge for the Federal Reserve as it navigates the timing of future interest rate cuts," said Joe Gaffoglio, CEO at Mutual Of America Capital Management.

"The labor market is showing signs of weakness with hiring across sectors, but inflation still remains sticky above the Fed’s 2% target," he added. "We don’t expect the Fed to cut rates at its next meeting or even in the next few months, but if the job market continues to weaken they will need to take action.”

U.S. stock futures moved higher following the data release, with futures tied to the S&P 500 indicating a 15-point opening-bell gain and the Nasdaq called 98 points higher. The Dow Jones Industrial Average was last called 55 points higher.

Jobs outlook is weakening

Benchmark 10-year Treasury note yields rose 1 basis point to 4.255% following the data release while rate-sensitive 2-year notes also rose 1 basis point to 3.944%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.61% lower at 103.571, the lowest since October.

Earlier this week data from Challenger Gray indicated the biggest two-month surge in corporate and government layoffs since 2009, with more than 62,000 job cuts in the federal workforce and cuts planned over the tech, retail and manufacturing sectors.

"With hiring in most sectors extremely weak, many laid-off workers will struggle to find new roles quickly, weighing on payroll growth and pushing up the unemployment rate slightly," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics

"We have been calling for weekly initial jobless claims to creep up to around 250,000 by the end of Q1 for some time," he added. "The latest Challenger data suggest that forecast is, if anything, too optimistic."

Payroll-processing group ADP, meanwhile, said the pace of private-sector hiring slowed by more than half last month, with a headline tally of just 77,000.

U.S. economy on recession watch

The collective weakness, alongside a slump in January retail sales, tumbling consumer confidence and a slump in manufacturing activity tied to tariff concerns, has now put the U.S. economy on recession watch.

"Job cuts in trade, transportation and utilities suggest a drag from tariff fears," said Bill Adams, chief economist at Comerica Bank in Dallas.

"While inflation as conventionally measured has come down, American consumers are still fed up with high prices after big cumulative increases over the last few years, and many retailers have reported consumers are more sensitive to price hikes and more willing to cut back on purchases in response to them than a few years ago," he added.

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The Atlanta Fed's GDPNow tracker forecasts a current-quarter contraction of around 2.4%, a figure that, even if it improves over the coming weeks, will likely suggest a first-quarter growth rate around half the pace it reached at the end of last year.

Bets on a near-term interest-rate cut from the Federal Reserve, meanwhile, are starting to accelerate, with the CME Group's FedWatch pegging the odds of a reduction in May at 43.7%, up from just 25% last month.

Traders are also betting on at least two cuts over the course of the year, after pricing in only a single rate cut for much of the first two months of trading.