The latest employment data came in significantly worse than expected early Friday, giving advisors a potential warning sign about the broader U.S. economy.
Total nonfarm payroll employment was down by 92,000 in February, and the unemployment rate changed little at 4.4%, according to the Bureau of Labor Statistics. Economists surveyed by Reuters were looking for about 59,000 new jobs added and the unemployment rate holding at around 4.3%.
Employment in healthcare decreased, reflecting strike activity, the Bureau of Labor Statistics said, while employment in information and federal government continued to trend down.
"Well, that was ugly,” said Bankrate Senior Economic Analyst Mark Hamrick, in a statement. “February’s employment data misses the mark across the board, with payrolls declining by 92,000 jobs and the unemployment rate up a tenth to 4.4%."
RETAIL SALES FALL
Also Friday, the Commerce Department said that retail sales fell 0.2% in January from the prior month, coming in below forecasts, which called for a flat reading.
"Today’s data signals the economy is entering a slower phase," said Gina Bolvin, president of Bolvin Wealth Management Group, in a statement. "The loss of 92,000 jobs alongside a dip in retail sales shows both hiring and consumer spending are beginning to soften."
The job also numbers mark a stark contrast with the prior month’s data as total nonfarm payroll employment rose by 130,000 in January.
Major indexes slipped in the wake of the worse-than-expected jobs data. The Dow Jones Industrial Average ended Friday's session down almost 1%, while the S&P 500 Index was off more than 1%. The Nasdaq Composite also ended the session down more than 1%.
“The February payroll release disappointed across the board reversing much of the optimism from last month,” said Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments, in a statement. “The trifecta of negative private payrolls, downward revisions, and a higher unemployment rate create an unambiguous negative print for the labor market.”
These sentiments were echoed by Brad Conger, chief investment officer at Hirtle Callaghan. “February’s employment report resumed the trend of a weakening labor market from last year,” he said, in a statement. Conger also pointed to fintech company Block’s (Ticker=XYZ) recent decision to lay off 40% of its workforce, which he described as a sign of the job bloat in the economy. “Artificial intelligence is NOT replacing jobs, but job cuts ARE funding AI expenditures,” he added.
Block, which was co-founded by Jack Dorsey, is the company behind Square, Afterpay and Cash App. Its recent layoffs have thurst AI, and its workforce impact, further into the spotlight.
FED MEETING LOOMS
The latest jobs numbers come just a week after Producer Price Index (PPI) inflation data came in higher-than-expected, fueling talk that the Federal Reserve will remain patient with rate cuts.
“Today’s release puts the Fed between a rock and a hard place as the labor market remains at stall speed but inflationary pressures are building due to both events in the Middle East and continued firm wages, which came in 10 bps ahead of expectations this morning,” said Schulze of ClearBridge Investments. “Today’s report is a negative for risk assets given its read-through to a softer economic outlook in a period where the Fed is likely to remain on the sidelines.”
In January the Federal Reserve kept its policy rate steady at 3.5% to 3.75%, despite coming under intense pressure from President Donald Trump to lower interest rates.
Brandon Adkins, head of Lipper North America Research at the London Stock Exchange Group told InvestmentNews that the latest jobs data "was not the best" and also looked ahead to the next Fed meeting. "The question is what's next - what can we expect from the Fed?" he said. "I think that we have to wait, just get a little bit more data to see the direction, but it is concerning."
The next Federal Open Market Committee will hold its next meeting on March 17 and 18. The Fed’s next policy announcement is expected on March 18.
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