WASHINGTON: U.S. job growth picked up in February and the unemployment rate edged up to 4.1%, but growing uncertainty over trade policy and deep federal government spending cuts could erode the labor market’s resilience in the months ahead.
Nonfarm payrolls increased by 151,000 jobs last month after rising by a downwardly revised 125,000 in January, the Labor Department’s Bureau of Labor Statistics said in its closely watched employment report on Friday.
Economists polled by Reuters had forecast payrolls advancing by 160,000 jobs after a previously reported 143,000 gain in January. Estimates ranged from 30,000 to 300,000 positions.
The rise in the unemployment rate was from 4.0% in January.
The report was the first under President Donald Trump’s watch. The Trump administration’s back-and-forth trade policy was making it hard for businesses to plan ahead, economists said. Business and consumer confidence have plunged since January, erasing all the gains notched in the aftermath of Trump’s election victory in November.
The stock market has sold off, with all three major indexes on Wall Street negative this year and the Nasdaq Composite in correction territory since peaking last December.
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Trade policy whiplash
Trump triggered a trade war this week, slapping a new 25% tariff on imports from Mexico and Canada, along with a doubling of duties on Chinese goods to 20%. But on Thursday, Trump exempted goods from both Canada and Mexico under a North American trade pact for a month from the 25% duty.
Layoffs of probationary federal government workers by tech billionaire Elon Musk’s Department of Government Efficiency, or DOGE, did not show up in the employment report as most of the purge happened outside the survey week. But hiring and funding freezes slowed government employment, one of the main pillars of job growth in recent years. A bigger hit on government payrolls is expected in March’s report.
On-and-off freezes on government funding have thrown out of work some of the contractors and employees at entities that receive federal grants. With most of the recent job gains concentrated in low-paying industries like leisure and hospitality, this could worsen what some economists have described as a white-collar recession.
For now, the labor market is underpinning the economy, which continues to expand, though at a very moderate pace.
A drop in consumer spending and homebuilding and surge in the trade deficit in January linked to tariffs led many economists to slash their gross domestic product (GDP) estimates for the first quarter to below a 1.5% annualized rate from around 2.0% last month. The Atlanta Federal Reserve is forecasting GDP contracting at a 2.4% rate.
The economy grew at a 2.3% pace in the fourth quarter. Labor market stability could buy the Federal Reserve more time to keep interest rates unchanged while policymakers monitor the economic impact of tariffs and an immigration crackdown.
The Fed left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range in January, having reduced it by 100 basis points since September, when it embarked on its policy easing cycle. The policy rate was hiked by 5.25 percentage points in 2022 and 2023 to tame inflation.
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