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U.S. hiring unexpectedly cooled in February, deepening doubts about a labor-market recovery after a stronger January. A Labor Department report released Friday also trimmed prior payrolls, and economists say the combination of weaker hiring and swelling costs tied to the war with Iran has raised fresh questions about the economy’s direction.
The report showed hiring slowed after employers added 126,000 jobs in January. Forecasters had been looking for roughly 60,000 new positions in February, but the data instead pointed to a softer labor picture — and revisions removed about 69,000 jobs from December and January payroll totals.
Industry leaders and economists say the result underscores how geopolitical shocks and lingering policy uncertainty are making firms wary of expanding payrolls. Heather Long of Navy Federal Credit Union described the current environment as one in which firms are holding back until consumer demand and global risks become clearer.
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Where the job losses landed
- Construction: down about 11,000 jobs, a pullback likely influenced by severe winter weather.
- Health care: roughly 28,000 positions cut, following a month-long strike by more than 30,000 Kaiser Permanente frontline workers in California and Hawaii.
- Manufacturing: another 12,000 jobs lost; factories have now reduced payrolls in 14 of the past 15 months.
- Leisure and hospitality: restaurants and bars shed nearly 30,000 positions.
- Administrative and support services: close to 19,000 jobs trimmed; courier and messenger services fell almost 17,000.
- Financial services: one of the few gainers, adding about 10,000 jobs despite ongoing cuts throughout the sector.
Wage growth remained present but modest: average hourly earnings rose 0.4% from January and 3.8% year-over-year. That combination — slowing hiring alongside persistent wage pressures — is complicating the policy outlook.
A policy dilemma for the Fed
The report arrives as the Federal Reserve weighs whether to ease policy to support the job market or keep rates restrictive to contain inflation. Economists warn that weak payrolls coupled with inflationary pressure from higher energy costs create a difficult trade-off for policymakers. As one analyst put it, this mix is among the least favorable scenarios for monetary decision-making.
Businesses cite several overlapping headwinds. Last year’s tariff moves and uneven implementation disrupted corporate planning, and some of that uncertainty eased after trade agreements and a Supreme Court ruling that undercut the largest levies. Still, the sudden rise in fuel prices tied to the conflict in the Middle East has undercut any stability firms were beginning to rebuild.
Boston College economist Brian Bethune summarized the sequence bluntly: companies only recently adapted to tariff shocks, and now rising energy costs are rearranging their 2026 plans once again.
How companies are reacting
Some firms expect relief if tariff burdens decline further. Jay Foreman, CEO of toy maker Basic Fun, said a recent court decision could open the door to refunds on prior tariffs, freeing funds that would be used for investment and pay increases. At the same time, new tariff proposals and a full-year exposure to existing levies could lift his company’s tariff bill substantially, he warned.
The net result for employers is caution: hiring plans are being scaled back or delayed until tariff outcomes, energy prices and geopolitical risks look less volatile.
What to watch next: upcoming monthly payroll reports, movements in oil markets, and any signals from the Fed about rate cuts or continued restraint. Together, those variables will determine whether the labor market stabilizes or slides into a more protracted soft patch — and they will shape household budgets and borrowing costs in the months ahead.
