Payrolls poised for solid, not spectacular gains

March 2, 2026

Payroll employment is expected to rise by 60,000 jobs in February, with the 130,000 figure for January likely to be revised down. January represents the largest month of the year for layoffs due to temporary holiday jobs; job gains were essentially zero before seasonal adjustment. That means fewer layoffs than usual. 

The ADP data for January came in weak, another signal that we could see a downward revision to January payrolls. However, ADP’s weekly pulse survey showed firming in early February, which suggests solid if not spectacular gains for the month. 

Weekly job gains picked up at the fastest rate since late autumn 2025, after the six-week government shutdown ended. That is well within a new, lower, breakeven range on payrolls that would leave the unemployment rate unchanged in 2026. 

The government’s household survey is expected to show the unemployment rate unchanged at 4.3% in February. That would match January. Churn in the labor market remains “slushy” as one of my colleagues put it, with the low hire, low fire, labor market thawing only a bit as we catch up on collateral damage caused by the six-week government shutdown in October and November last year. Federal workers were paid in arrears; contractors and the communities that relied upon those workers were not. The current impasse over funding for the Department of Homeland Security is far less broad-based; fewer workers are impacted, with the notable exception of TSA agents.  

The public sector is expected to shed 7,000 jobs in February. Burnout and retirements remain high at the federal level. Some agencies have job openings but little guidance on when the funds to hire will be approved. The red tape for hiring at the federal level outside of ICE and Customs and Border Protection agents has intensified.

Private sector payrolls are expected to more than account for all new jobs by adding 67,000 jobs for February. The lion’s share of those gains is expected to remain in healthcare and social assistance. Aging demographics are the primary reason. Baby boomers are aging into their peak retirement years, which is adding to the rolls of Medicare, while the silent generation is moving into their late 80s and 90s, which creates it own unique stresses on the healthcare system. The job posting site Indeed reveals that the sector, which is unusually dependent on immigrant labor, is one of the few where signing bonuses are still common and running above levels we saw pre-pandemic. Healthcare has been increasingly stressed across the globe in the wake of pandemic losses. 

Lapsing subsidies for the Affordable Care Act and new work requirements for Medicaid coverage are affecting many states. The shifts skew care to emergency rooms, which are more costly and further stress the finances of the healthcare system. 

Leisure and hospitality are expected to remain lackluster. A winter storm blanketed the East Coast late in February, after the survey was taken. Unusually cold weather across major markets in the South took a toll on the travel to those parts of the country, closing some hotels and restaurants. 

A jump in tax refunds should provide an extra lift to those out on vacation this spring and could fuel spending on discretionary items. Those refunds are just beginning to hit consumer wallets. 

The goods sector could show signs of life. Data centers require few workers to build but the jobs tend to be concentrated among specialty commercial contractors, including specialists in HVAC for the cooling systems needed for data centers. Efforts are underway to increase the efficiency of those systems to limit costs and stress on existing infrastructure. 

Average hourly earnings are expected to rise by 0.3% in February, after jumping 0.4% in January. That translates to a 3.7% increase from a year ago, the same as January. Many employers are holding onto workers after they campaigned hard and paid hefty signing bonuses to get them. Firms are now attempting to curb hours worked and limit raises and the benefits they pay out to limit the blow to margins, along with wages. An outlier has been the competition for AI talent, which is scarce. Innovations have enabled many to act as their own software agents and challenge computer coding professionals. 

New developments in AI are occurring more rapidly than they can be rolled out and applied. That is not unusual. What is unique is the ability of AI models to reason, which is where debate is most heated. How much human endeavor can be replaced instead of just augmented? That raises a whole host of ethical and societal issues that are virtually absent from public discourse on AI.  

Many internal applications that firms are leveraging are not as advanced as what we are seeing on our personal computers and phones due to guardrails on data security. That is currently one of the largest hurdles to rapid adoption, given the pace at which the public has leaned in.