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The U.S. labor market likely kept on churning out jobs last month, economists say, but the outlook is cloudy and getting cloudier as the Trump administration wages trade wars, purges federal employees and seeks to deport millions of immigrants.
When the Labor Department releases February jobs numbers Friday, they’re expected to show that employers added 160,000 jobs. That’s far from spectacular but it’s solid, and it’s up from 143,000 in January. The unemployment rate is forecast to stay at a low 4%, according to economists surveyed by the data firm FactSet.
“Despite rising concerns about the health of the economy, momentum remains positive,’’ Lydia Boussour, senior economist at the tax and consulting firm EY, wrote in a commentary.
Billionaire Elon Musk’s purge of federal workers is not expected to have much impact on the February jobs numbers. The Labor Department conducted its survey of employers too early in the month for the Department of Government Efficiency layoffs to show up.
“We expect to see a more visible dent to federal payrolls in March and subsequent months,’’ Boussour said.
Diane Swonk, chief economist at accounting giant KPMG, expects that hiring at leisure and hospitality companies — which include hotels, restaurants, theaters — bounced back last month after falling during January’s wildfires in Los Angeles.
“The key issue will be who shows up for the jobs,’’ she wrote in a commentary. Swonk noted that the Trump administration has revoked asylum for nearly 1 million Venezuelan and Haitian refugees, “which may keep them from showing up to work or filling vacancies that native-born workers tend to shun.’’
The American job market has remained remarkably resilient, but it has cooled from the red-hot hiring of 2021-2023. Employers added a decent average of 166,000 jobs a month last year, down from 216,000 in 2023, 380,000 in 2022 and a record 603,000 in 2021 as the economy rebounded from COVID-19 lockdowns.
Hiring continued despite high interest rates that had been expected to tip the United States into recession. The economy’s unexpectedly strong recovery from the pandemic recession of 2020 set loose an inflationary surge that peaked in June 2022 when prices came in 9.1% higher than they’d been a year earlier.
In response, the Federal Reserve raised its benchmark interest rate 11 times in 2022 and 2023, taking it to the highest level in more than two decades. The economy remained sturdy despite the higher borrowing costs, thanks to strong consumer spending, big productivity gains at businesses and an influx of immigrants who eased labor shortages.
Inflation came down – dropping to 2.4% in September — allowing the Fed to reverse course and cut rates three times in 2024. The rate-cutting was expected to continue this year, but progress on inflation has stalled since summer, and the Fed has held off.
Economists expect that workers’ average hourly earnings rose 0.3% last month, down from a 0.5% increase in January, a drop likely to be welcomed by the Fed — but not enough to get the central bank to cut rates at its next meeting March 18-19. In fact, Wall Street traders aren’t expecting another cut until May, and they’re not especially confident about that one, according to the CME Group’s FedWatch tool.
Economists say the economic outlook is growing more uncertain as Trump imposes — or threatens to impose — a series of taxes on imported goods.
“Steep tariff increases could cause adjustments in business decisions with knock-on effects on hiring and wages as business leaders navigate higher input costs and retaliatory measures,” Boussour said. “This could lead to a more severe job slowdown, weaker income and restrained consumer spending amidst much higher inflation.’’
