Forecasts for February Jobs Report Show Continued Strong Growth

Forecasts for the February jobs report show another month of healthy jobs growth, though economists expect smaller headline gains compared with January’s blockbuster increase in hiring.

The US economy is forecast to have added 200,000 jobs in February, according to FactSet’s consensus estimates. That’s significantly lower than January’s 353,000 jobs, but a headline number in line with the consensus forecast would paint a picture of a labor market (and an overall economy) that still is in solid shape. The report is due to be released on Friday, March 8 at 8:30 EST.

The economy has been adding between 200,000 and 250,000 jobs per month over the last few months, according to Bill Adams, chief economist at Comerica Bank. “A moderation from [the January] pace doesn’t necessarily raise warning signs about the expansion’s health,” he says. He predicts an increase of 180,000 jobs in February, along with a slight increase in the unemployment rate from 3.7% to 3.8%.

Friday’s data will come just ahead of February inflation data and the Federal Reserve’s March policy-setting meeting. Central bank officials have emphasized that while the labor market continues to return to more normal conditions after the lingering impact of the covid-19 pandemic, inflation remains elevated. The Fed has taken a cautious tone around lowering interest rates, and markets have pushed back their expectations for the Fed’s first cut from March to June.

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Federal Reserve Chair Jerome Powell said in prepared remarks before Congress on Wednesday. “But the economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured.”

What Is Normalization?

January’s data came in well above expectations, but economists say that print was not indicative of a larger trend, since seasonal swings and adjustments tend to be larger at the start of the year. In general, analysts expect the jobs market to continue “normalizing”—the return to pre-pandemic dynamics in the balance between the availability of jobs and the number of job seekers, and how that plays out with wage pressures.

Between the shock of the pandemic, which sent the unemployment rate to a record 14.7% in April 2020, and the speed of the recovery, which saw hiring surge as prices soared, regular historical patterns have been unreliable for measuring employment in the United States.

Analysts say the economy is in the process of returning to more typical dynamics, even though the labor market has retained much of the strength it built up during the recovery. “The labor market remains relatively tight, but supply and demand conditions have continued to come into better balance,” Powell said Wednesday.

Adams puts it this way: “The US economy is transitioning from too much price pressure, with prices of everything rising too quickly, including wages, to an economy with more normal pricing dynamics and more normal wage growth.”

February Jobs Report Consensus Estimates

• Nonfarm payroll employment is forecast to rise 200,000 vs. its 353,000 increase in January, according to FactSet.
• The unemployment rate is forecast to remain steady at 3.7%.
• Hourly earnings are predicted to rise 0.3% on a monthly basis, down from 0.6% in January.

José Torres, senior economist at Interactive Brokers, expects much of February’s job gains to come from non-cyclical sectors like government, health services, and education. January’s report showed more broad job gains across all sectors, but he doesn’t expect that to continue. He says more non-cyclical hiring means “the rate-sensitive and more investment-driven areas of the economy aren’t hiring as much … there’s uncertainty in the economy, and there’s some weakness under the surface.”

Outside those non-cyclical sectors, Torres is anticipating some gains in the leisure and hospitality sectors along with trade, transportation, and utilities. He’s anticipating weaker growth in finance, manufacturing, mining, and professional business services. Overall, he’s expecting headline jobs growth of 210,000 in February.

Goldman Sachs chief US economist David Mericle anticipates that between 30,000 and 50,000 of February’s job gains will be attributable to more favorable weather—a factor that also prevented the unemployment rate from climbing further that month. “We believe fewer end-of-year layoffs drove the 353k jump in January payrolls, and with that tailwind now behind us, we assume a return to a more normal pace of job gains,” he wrote in a note earlier this week.

Keep an Eye on Wage Growth

In general, economists believe wage growth fell in February. Adams thinks his forecast of a monthly increase of 0.3% would be in line with the continued normalization of labor market pressures. “The US economy is transitioning from too much price pressure, with the prices of everything rising too quickly, including wages, to an economy with more normal pricing dynamics and wage growth,” he says.

Torres saw warning signs in January’s 0.6% wage growth, which he characterizes as too hot despite the seasonal abnormalities in the data. “Six-tenths of a percent in one month [is] hardly consistent with a 2% inflation target,” he says.

When Will the Fed Cut Rates?

Wage growth also has major implications for interest rate policy. Adams says, “If we see average hourly earnings moderate further in February, that will make the path clearer for the Fed to cut interest rates relatively soon.”

Bond traders expect the first Fed rate cut in June, according to the CME FedWatch tool, and they are anticipating between three and four cuts in 2024. “If February employment points to resilience over re-acceleration and moderation in wage growth, then we would expect this pricing to hold,” Bank of America analysts wrote earlier this week.