US employers unexpectedly cut hiring in February and the unemployment rate rose, raising concerns about the strength of the labor market.
Nonfarm payrolls fell by 92,000 last month after a strong start to the year, according to data released Friday by the Bureau of Labor Statistics (BLS). The unemployment rate rose to 4.4%. The drop in wages was partly due to a drop in health care employment as a result of strike activity.
The report raises questions about whether the labor market is actually stabilizing after experiencing the weakest non-recession hiring in a decade. Although job growth surged at the start of the year and jobless claims remain low, companies may be moving forward with a number of previously announced layoffs.
Additionally, recent increases in productivity show how investments in artificial intelligence have enabled some firms to operate with smaller workforces.
These developments could shift the Federal Reserve’s focus back to the labor market as it evaluates how long to keep interest rates on hold. Policymakers have been paying more attention to inflation recently, even before the US-Israeli war against Iran, according to Bloomberg.
Kevin Hassett says US economy ‘really strong’ despite 92,000 job cuts
White House economic adviser Kevin Hassett said in an interview that the U.S. economy remains “really strong” despite the loss of 92,000 jobs last month.
In an interview with CNBC, Hassett suggested that hiring trends should be evaluated over several months rather than focusing on one month’s data. He added that the latest jobs data was in line with expectations, noting that reduced immigration means that steady-state employment is likely to be around 30,000 to 40,000 jobs a month.
He concluded: “It’s consistent with everything else we’re seeing, which is that the economy is really strong.”
US labor productivity rose in the fourth quarter
Meanwhile, U.S. labor productivity grew at a faster-than-expected pace in the fourth quarter after the strongest increase in five years, providing further evidence that companies are seeking greater efficiency in managing costs.
Data released Thursday by the BLS showed that hourly output of nonfarm payroll workers rose an annualized 2.8%. Productivity growth for the third quarter was revised upwards to 5.2%.
This upward trend in efficiency has helped keep wage pressures in check and supported the view of Federal Reserve officials that the labor market is no longer a significant contributor to inflation.
Labor costs represent the highest cost for many companies, leading them to adopt new technologies and equipment to increase worker productivity. Investments in innovations such as artificial intelligence have allowed some firms to operate with smaller workforces, contributing to subdued hiring last year.
Unit labor costs, the amount businesses pay to produce one unit of output, rose 2.8% in the fourth quarter after falling in the previous two quarters.
While economic growth slowed toward the end of last year, it was largely driven by the effects of the longest U.S. government shutdown on record, which led to the biggest drop in federal spending since 1972. Business investment, however, continued to grow at a strong pace.
Economists polled by Bloomberg had expected a median fourth-quarter productivity growth of 1.9%. Productivity grew 2.2% for the full year, while labor costs rose 1.9% in 2025, according to the BLS.
Analysts generally expect efficiency improvements to continue this year, driven by continued investment in artificial intelligence. In addition, investment incentives under President Donald Trump’s One Big Beautiful Bill Act could further boost business spending.
The productivity report indicated that nonfarm output rose an annualized 2.6% in the fourth quarter. Hours worked fell 0.2%, while hourly compensation, not adjusted for inflation, rose 5.7%. Adjusted for inflation, workers’ wages rose at the fastest pace in more than a year.
Separate data released Thursday by Challenger, Gray & Christmas Inc. showed that announced layoffs fell in February compared to a year earlier. Jobless claims also remained low last week, providing further evidence of a stabilizing labor market.
(With agency input)
