Employment Trends: Softening Signals Despite Strong Hiring

Weekly Economic Review: March 7, 2025

Mixed job market results for February: Signs of softening employment despite steady job creation

Last week, the stock market sold off due mainly to uncertainty surrounding the implementation and reprieve on tariffs on imports from Canada and Mexico. Last Friday’s weaker-than-expected job report lowered Treasury yields, but after Fed Chair Powell’s positive comments on the economy and labor market, the stock market edged higher and Treasury yields rose.

Job creation remained resilient in February led by growth in health care, while federal government employment declined. Despite the overall job growth, the unemployment rate rose as more workers permanently lost their jobs, and the participation rate (the proportion of the population working or seeking work) dropped to its lowest level in two years. The share of workers with multiple jobs was the highest since the Great Recession. Additionally, temporary help services have been on a downward trend for the last three months.

Let’s examine in more detail the job creation and employment situation that were announced last week.

Job Creation and Employment Situation: The Bureau of Labor Statistics (BLS) reported that businesses added 151,000 new jobs in February, following 125,000 jobs in January (revised down from 143,000). February’s job growth fell short of the anticipated 160,000 despite significant contributions from health care (52,000), financial activities (21,000), transportation & warehousing (18,000), and social assistance (11,000). Federal government employment declined by 10,000 in February.

While January’s job creation figure was revised down by 18,000, December’s figure was revised up by 16,000, from 307,000 to 323,000. Combined, the revisions for December and January are just 2,000 jobs lower than previously reported. Consequently, the three-month average of monthly job growth, which helps smooth out monthly fluctuations, declined to 200,000 from 236,000 in January.

The unemployment rate increased slightly to 4.1% in February, higher than the market’s expectation of 4.0% and up from 4.0% in January. The number of job losers (or layoffs) increased by 81,000 to 3.32 million, driven mainly by an increase of 99,000 in permanent layoffs, partially offset by a reduction of 18,000 in temporary layoffs. Additionally, the number of job leavers—unemployed individuals who voluntarily quit their jobs and immediately started looking for new employment—increased slightly by 6,000 to 918,000 in February, after declining by 35,000 to 912,000 in January. Employment in temporary help services, a leading labor market indicator, stood at 2.53 million in February, continuing its downward trend over the past three months and remaining below the pre-pandemic level of 2.9 million.

The labor-force participation rate, which measures the percentage of working-age people who are employed or actively seeking work, declined to 62.4% from 62.6% in the previous month, lower than the market expectation of 62.6%. The number of people working part-time for economic reasons—those who would prefer full-time employment but are working part-time due to reduced hours or inability to find full-time jobs—increased by 460,000 to 4.94 million in February, following an increase of 119,000 in January. Wage growth, measured by average hourly earnings, rose by 0.3% in February after a 0.4% increase in January (revised down from 0.5%), which came in as expected. On an annual basis, wages grew by 4.0%, higher than the revised figure for the previous month (3.9% revised down from 4.1%) but lower than the market’s expectation of 4.1%.

On a concluding note,, the first employment data released under the Trump administration indicated steady job growth in February. However, it also revealed increases in the unemployment rate, permanent layoffs, part-time workers due to economic reasons, and individuals holding multiple jobs. The February job re-port noted a reduction of 10,000 federal government jobs, likely an early result of the federal job cuts led by the Department of Government Efficiency (DOGE). Some market participants antici-pate that the federal job cuts and their impact on private companies working with the government could result in range of 400,000 to 500,000 job losses by the end of the year. The effects on the labor market are expected to become evident starting in March.

Last Friday, at the University of Chicago Booth School of Business Monetary Policy Forum in New York, Federal Reserve Chair Jerome Powell stated that the economy is currently in a good position, even though uncertainty regarding the economic outlook has increased. He further noted that there is no need to rush into adjusting interest rates. Powell also mentioned that consumer spend-ing has slowed down and that the process of disinflation will be uneven.

The market now predicts three 0.25% rate cuts in 2025, totaling 0.75%. The first 0.25% rate cut is expected at the June FOMC meeting, followed by a second in September and the third in Decem-ber. Despite this sentiment, the Treasury yield curve stiffened slightly last week. Short-term yields remained almost unchanged, while mid- and long-term yields experienced a slight increase. The two-year, five-year, and ten-year Treasury yields closed at 3.99%, 4.09%, and 4.32%, respective-ly. The two-year yield remained unchanged, whereas the five-year and ten-year yields increased by 6 and 8 basis points, respectively, compared to the previous week.

Looking ahead,,the January Job Openings and Labor Turnover Survey (JOLTS) report will be released on Tuesday, and the Consumer Price Index (CPI) and Producer Price Index (PPI) reports for January are set to be released on Wednesday and Thursday, respectively. The market anticipates a monthly headline CPI increase of 0.3% and an annual headline CPI of 2.9%. On the producer side, the monthly and annual PPIs are expected to increase 0.3% and 3.3%, respectively.

Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

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