Flash Macro: U.S. Jobs

How are we thinking about the February 2026 U.S. jobs report?

The February payroll report was clearly weak, with -92k jobs lost versus consensus expectations of +55k and a downwardly revised +126k last month. Several one-off factors amplified the downside volatility, including healthcare worker strikes (Health/Education -34k after +129k last month) and severe winter weather that materially impacted Accommodation/Food Services (-35k) and Construction (-11k). Collectively, those weather-sensitive categories were nearly 100k weaker than in January.

Even looking through those temporary distortions, however, the broader tone of the report was consistent with a labor market operating near stall speed. The unemployment rate ticked up to 4.4% versus 4.3% consensus, while labor force participation has now fallen 50 basis points from its November peak to 62%. Absent that participation decline, unemployment would likely be closer to 5%. Importantly, wage growth remains firm at 3.8% year-over-year, above both consensus and last month’s 3.7%, underscoring that softer hiring has not yet translated into meaningful labor cost relief.

What do we think this means for markets?

1. First, while the headline was ugly, we do not view it as signaling an abrupt deterioration in labor demand as there are multiple one-time factors at work including a healthcare worker strike (31k), bad weather (which dinged Food/Accommodation by 35k), and some birth/death changes. Remember that weekly claims were a modest 213k last week and the three-month moving average has been a steady 215k.
2. Most importantly, sector composition continues to matter. Education/Healthcare, which has been 100% of job growth for quite some time, turned negative for the first time since 2020, at -34,000, compared to last month’s +129,000.
3. Were it not for sustained productivity strength, this report would feel stagflationary, or a worse version of our Regme Change thesis.
4. Despite reshoring and Fed cuts, the Goods sector remains in a recession. All told, Goods jobs were -25,000. Every sector was negative: Mining/Logging, Construction, Durable Goods, and Non-Durable Goods.
5. On the Services side, the big delta was -34,000 for Education/Healthcare as well as Leisure/Hospitality’s -27,000. Government too was -6,000, the third month in a row of negative job growth.
6. Macro Bottom line: If we average the past few months, the broader trend still points to a low hiring/low firing environment. The K-shaped economy remains intact, and higher oil prices only feed this narrative. Meanwhile, AI fears will not change the dynamic that the employment backdrop will remain challenging. However, it does not mean that the economy is rolling over. Even when we put much higher oil prices in our model, we still get to near 10% EPS growth and GDP north of 2.0%.