Unemployment Rate Surges to Its Highest Level in Two Years

The labor market displayed unusual weakness in February, witnessing an unexpected rise in the unemployment rate, reaching its highest level since the Federal Reserve initiated rate hikes in early 2022. Despite this, job growth exceeded economists’ forecasts.

KEY FACTS

• The U.S. added 275,000 jobs in February, surpassing consensus economist estimates of 200,000.
• The unemployment rate stood at 3.9%, higher than the forecasted 3.7% and the January rate.
• This marks the highest unemployment rate since January 2022.
• Average hourly wages increased by 0.1% from January to February on a seasonally adjusted basis, falling well below January’s 0.6% month-over-month growth and the anticipated 0.3%, while annual wage growth reached 4.3%.

KEY BACKGROUND

• Wage growth continues to outpace inflation, which recently stood at 2.8% as measured by the Federal Reserve’s preferred core personal consumption expenditures metric. Despite rising from its 54-year low of 3.4% early last year, the national unemployment rate has remained comfortably below 4%, defying inflation’s downward trajectory.
• The Fed’s ongoing tightening cycle presents challenges for workers, evident in high-profile corporate layoffs, limited job mobility, and substantially lower wage growth compared to the 2021-22 period.
• There is widespread anticipation that the Fed will commence interest rate cuts at some point this year, a move expected to stimulate the labor market by reducing corporate borrowing costs.

WHAT TO WATCH FOR

• The next significant economic report is Tuesday’s consumer price index report, which economists anticipate will reveal a modest increase in core inflation.