Jobs data reveal reasons for consumer concern

March 7, 2025

Payroll employment rose by 151,000 in February, after rising a downwardly revised 125,000 in January employment. Public sector payrolls accounted for 11,000 of those gains, driven by gains in local government employment. The federal government shed 10,000 jobs, the largest decline since June 2022. That is still early for the layoffs we saw at the federal level in late January. We will not see the full effects of recent federal layoffs until March and April.

Private sector payrolls rose by 140,000, which is well above the downwardly revised pace of 81,000 in January. Financial activities added 21,000. Transportation and warehousing added 17,800 jobs, the fourth consecutive month. The gains were concentrated in delivery services.

Construction rose 19,000, with gains dominated by specialty contractors in the residential sector. Manufacturing added 10,000, mostly in motor vehicle and parts manufacturing.

Vehicle inventories have slipped in recent months, while electric vehicle (EV) sales have surged. Consumers scrambled to take advantage of EV tax credits since the election as they are expected to be rescinded to pay for other tax cuts by Congress.  

Leisure and hospitality continued its downward march, with a loss of 16,000 jobs. The largest hit was restaurants, which contracted by 27,500 jobs. Some of that could reflect weakness due to fear of deportations. Leisure and hospitality is one of the sectors most dependent on immigrant labor. Often those workers are undocumented.

Retail took a hit, falling 6,300 after rebounding last month. The outlier was big-box discounters as consumers traded down and searched for value.  

Average hourly earnings rose only 0.3% in February, after adding a downwardly revised 0.4% pace in January. That translates to a 4.0% gain from a year ago, the same as last month. The three-month moving average cooled to 3.6%. Average hours worked held at 34.1 in February for the second consecutive month. That ties the low of Match 2020 and helps explain why consumer attitude surveys have soured in recent months. Their take-home pay is slowing, while the level of prices remains elevated.

Separately, the unemployment rate edged up to 4.1% in February.  That was despite a drop in the participation rate to 62.4% from 62.6% in January. The drop was across all ages and races of prime-age (25-54) men.  

The U-6 measure of unemployment, which better measures underlying stress in the labor market, jumped to 8.0% in February from 7.5% in January. That is the highest level since October 2021, before the economy had fully recovered the jobs lost to the pandemic. The rise was dominated by people experiencing slack work or business conditions. The monthly loss in jobs due to poor economic conditions was the highest since April 2020.

Multiple job holders hit a new record during the month and made up the highest share of total employment since April 2009. That gain was driven by workers who are now working full-and part-time jobs. Women dominated that increase as they worked to supplement their pay amidst persistently high price levels.

The ranks of those out sick continued to rise in February and hit the highest level since December 2022. That was when we were still naming waves of COVID; in the winter of 2022 it was the Omicron wave. Flu, COVID and norovirus cases have all picked up.  Some schools have had to shut down to contain outbreaks, including the measles.

Job gains slowed markedly as we entered 2025 after rebounding in late 2024. That confirms other data suggesting that the economy will slow notably in the first quarter amid heightened uncertainty. Markets are pricing in three cuts in rates by the Federal Reserve by year end, double what they expected a month ago. What market participants are failing to fully consider is the risk of inflation associated with tariffs. The combination of sluggish growth and elevated inflation puts us at risk of stagflation, which we have not seen since the 1970s; bond yields rose even as unemployment jumped back then.