US jobs report likely to mask cooling

The Bureau of Labor Statistics will likely issue another strong jobs report Friday, but one that shows hiring in February was concentrated in just a few sectors and masked a broader cooling in the labor market, according to Bloomberg Economics.

January’s nonfarm payroll reading was a blowout number, but most other indicators suggest the job market is much less tight, economists Anna Wong, Stuart Paul and Eliza Winger wrote Thursday in a preview of the release. “We believe that’s the more accurate picture — and we expect the nonfarm payroll data to increasingly reflect that in coming months.”

The trio estimated that employers added 185,000 to head count in February, a slowdown from the blockbuster 353,000 in the prior month. Job gains last month were probably driven by health care services and government — sectors that aren’t sensitive to downturns — and from construction, which may have benefited from warmer-than-normal weather, they wrote.

The median prediction in a survey of economists calls for a 200,000 non-farm payroll gain and for the unemployment rate holding steady at 3.7% for a fourth straight month. 

Bloomberg Economics expects the rate to tick up to 3.8% as job seekers find it harder to land work.

Recent data indicated the job market remains strong but is cooling gradually. Unemployment claims are still historically low and job openings are elevated, though have come down substantially from a 2022 peak. The Federal Reserve’s most recent Beige Book pointed to several reports of slower wage gains, echoed in reports from small businesses.

Fed Chair Jerome Powell, testifying this week before lawmakers, said he believed the labor market was “coming into better balance between supply and demand.” He also suggested the central bank is getting close to the confidence it needs to start lowering interest rates.

Bloomberg Economics expects the Fed to pivot quickly when the payrolls data eventually slows.

“Given our expectation that the labor market will cool more quickly ahead, we expect the Fed to cut rates in May — earlier than market expectations for June,” the three economists wrote. 

The economists said the strong January jobs number — which showed the biggest pickup in payrolls in a year — may be revised down, based on the more complete set of responses incorporated into Friday’s release and other labor-market data. The team also noted the January survey had an unusually low response rate, which, if continued, could obscure how they interpret the February figures.

“The strong January reading was at odds with contemporaneous labor indicators – for example, both the hiring and quits rates declined in January,” they wrote. “Meanwhile, business and consumer surveys suggest the labor market is cooling rapidly.”