U.S. February Non-Farm Payrolls Preview: New Job Gains Expected to Drop to 50,000, Hidden Concerns Behind the "Stable" Labor Market

CNBC Finance APP has learned that on Friday, the U.S. Bureau of Labor Statistics will release the highly anticipated February non-farm payroll report. Amid widespread market expectations that job growth will significantly slow down compared to January, economists are trying to interpret the true health of the labor market beneath the surface of “stability.” Factors such as industry concentration, signals of consumer weakness, and policy uncertainties intertwine, adding more points of interest to this upcoming data release.

Market Expectations: Sharp slowdown in growth, unemployment rate steady

Several institutions predict that the February non-farm payroll report may not replicate the surprising 130,000 new jobs added in January. According to a Dow Jones survey, economists expect an increase of 50,000 non-farm jobs in February. Allianz Trade Americas senior economist Dan North described the current U.S. labor market as “somewhat dull” in an interview. He said that while February’s non-farm employment data may show positive growth, it is “not truly strong or exciting.”

Meanwhile, the unemployment rate is expected to remain at 4.3%. Chicago Fed’s real-time indicators show that the employment situation in February is basically stable. Their estimates indicate the unemployment rate stays at 4.27%, just slightly below January’s 4.28%; the hiring rate rose slightly from 45.16% to 45.42%; layoffs and other separations remain steady at 2.07%.

The other side of “stability”: single-sector growth and potential vulnerabilities

Although Federal Reserve officials and market economists have recently used “stability” rather than “instability” to describe the labor market, this optimism is more due to expectations adjustments rather than significant improvements in fundamentals.

Claudia Sahm, chief economist at New Century Advisors and well-known for the “Sahm Rule,” pointed out that there are signs of some stability in the labor market, but she also warned that the current extremely low hiring rate makes the economy “fragile.” “Considering the U.S. economy is expanding, such a low hiring rate is indeed puzzling,” Sahm emphasized. “We need to see hiring activity pick up again.”

Laura Ullrich, director of economic research at job site Indeed, raised deeper questions about this “stability.” She noted that a potential issue is that almost all job growth is concentrated in healthcare and social assistance. In January, these two sectors contributed the majority of new jobs (healthcare added 82,000, social assistance 42,000). Ullrich believes that if growth is driven solely by a single sub-sector, it’s hard to define it as “balanced” or “stable.”

In stark contrast to the ongoing expansion in healthcare, tech-related industries are under pressure. The accelerated adoption of artificial intelligence (AI) is reshaping the job market. Last week, Jack Dorsey, co-founder of Block (XYZ.US), announced that to cope with AI development, the company will cut about 40% of its staff, which shook the market.

Additionally, the February report may be influenced by specific events. Although the strike by Kaiser Permanente workers ended on February 23, because the strike occurred during the week of the Bureau of Labor Statistics survey, it could impact employment data in healthcare, affecting about 31,000 workers in California and Hawaii. Bank of America estimates that February non-farm employment may only increase by 35,000, below market expectations.

Chris Lau, head of DIY Value Investing, said he will closely monitor developments in the tech and healthcare sectors. Despite overall employment growth in healthcare, he remains cautious about providers like UnitedHealth (UNH.US), Cigna (CI.US), and Elevance Health (ELV.US).

Macroeconomic risks: Cooling consumption and policy uncertainty

The moderate performance of the employment market also aligns with signs of slowing consumer spending. Data shows that real personal consumption expenditures growth has slowed to 1.7% year-over-year, about half of its long-term average; disposable income growth, which fuels consumption, has also fallen to 0.9%. Additionally, retail sales control group’s year-over-year growth slowed from 4.7% to 3.5%. Adjusted for inflation, holiday sales also performed “quite poorly,” with only about a 1.5% YoY increase.

Veronica Clark, an economist at Citigroup, believes that recent labor market stability is more a reflection of seasonal patterns rather than a true improvement in worker demand. She expects data to weaken again starting in March, with more pronounced softness in the second quarter, and predicts the Fed will cut interest rates by 75 basis points within the year.

Policy uncertainties, especially the recurring issues around tariffs, are another major reason for low corporate hiring intentions. Since the announcement of tariffs on “D-Day” last year, many employers have hesitated to increase hiring or invest due to the uncertain environment, resulting in a stalemate of “low hiring and low layoffs.”

Regarding geopolitical impacts, North from Allianz believes that as long as the Iran conflict does not become prolonged, its direct impact on the labor market will be limited. He judges that markets tend to digest such shocks relatively quickly.