Jobs report Friday is expected to show a slowing but still healthy labor market


A workers stocks the shelves in a CVS pharmacy store on February 07, 2024 in Miami, Florida. 

Joe Raedle | Getty Images

Job growth in the U.S. likely decelerated in February while still a long way from stall speed as companies continue to keep up demand for workers.

When the Labor Department releases the nonfarm payrolls report Friday at 8:30 a.m. ET, it’s expected to show growth of 198,000 and the unemployment rate holding steady at 3.7%, according to Dow Jones consensus estimates.

If the forecast is close to accurate, it would mark a considerable downshift from January’s explosive growth of 353,000, but still representative of a fairly vibrant labor market.

“This is kind of a cautious labor market. Employers are hiring to keep pace with business activity,” said Julia Pollak, chief economist at ZipRecruiter. “Many businesses still report higher than expected sales. But they’re not aggressively hiring for growth and to expand. For that, many are still taking a wait-and-see approach.”

January’s surge followed a robust gain of 333,000 in December, seemingly countering the picture of an apprehensive hiring climate.

However, Pollak noted that both numbers were inflated from seasonal distortions, where retailers in particular cut fewer holiday jobs than expected. February, though, could see growth as high as 240,000, as companies look to fill an elevated level of open positions, Pollak said.

Too much growth?

ZipRecruiter’s quarterly job-seeker survey showed expectations for the medium-term outlook hitting a series high, while applicants also indicated stronger levels of confidence in their financial wellbeing and current state of the labor market.

Under normal conditions, those would all be positive attributes. But there are other concerns now.

A jobs market that remains red-hot could deter the Federal Reserve from cutting interest rates this year as expected. Earlier this week, Atlanta Fed President Raphael Bostic expressed concern about potential “pent-up exuberance” that could be unleashed in the business community after the central bank starts easing.

“Once rate cuts begin, that will give a boost to certain industries that they’ve been waiting for, especially when it comes to capital investments,” Pollak said. “Many companies are still holding back and waiting. Manufacturing will be a very interesting one to watch. There has recently been a bit of an improvement in durable goods manufacturing job openings. The checks are in the mail.”

Markets expect the Fed to start cutting rates in June, though the outlook has become less certain in recent weeks as policymakers weigh the direction of inflation.

Despite the uncertainty over monetary policy, companies have forged ahead with hiring.

The job market remains incredibly tight, says Recruiter.com's Evan Sohn

There have been mixed signs regarding layoffs. This was the biggest February for announced layoffs since 2009, according to Challenger, Gray & Christmas, but workers seem to be able to find other jobs quickly, as evidenced by little change in the weekly jobless claim filings with the Labor Department.

The department’s Job Openings and Labor Turnover Survey for January, released earlier this week, showed layoffs actually decreased over the month and were down nearly 16% from a year ago. Job openings were little changed on the month but decreased 15% from the same period in 2023. Vacancies outnumbered available workers 1.4 to 1, down from 1.8 to 1 on the year.

“I haven’t seen layoffs,” said Tom Gimbel, founder and CEO of LaSalle Network, a staffing and recruiting firm. “What I keep seeing is the small- and mid-market going after market share, and the hiring seems to come in that bracket. They’re hiring the people that the bigger companies, specifically Big Tech, are laying off.”

Demand still strong

Indeed, a steady procession of layoffs at tech giants has attracted headlines recently. The trend continued into February, as employment placement site Indeed reported a 28% slide in job postings for software development and a 26% plunge in information design and documentation.

But other sectors are still showing demand. Job postings surged 102% for physicians and surgeons, 83% for therapists and 82% for civil engineering.

In its most recent survey of economic conditions, the Fed found that the ultra-tight labor market has loosened somewhat, but there are still active pockets.

“Businesses generally found it easier to fill open positions and to find qualified applicants, although difficulties persisted attracting workers for highly skilled positions, including health-care professionals, engineers, and skilled trades specialists such as welders and mechanics,” the Fed said in its “Beige Book” report released Wednesday.

The report precedes each Fed meeting by two weeks and helps inform policymakers on trends across the economy. Business contacts noted that wages are continuing to rise, though at a slower pace. Wage gains are an important piece of the inflation puzzle.

Friday’s report is expected to show average hourly earnings up just 0.2% on the month, down from a 0.6% jump in January, though still increasing at a 4.4% pace. The big monthly move in January came largely from a decline in the average work week, which elevates the appearance of average hourly earnings.

Even with the hotter than expected inflation numbers, Fed Chair Jerome Powell said Thursday that the central bank is “not far” from gaining enough confidence in the trajectory of inflation to start cutting rates.

“A lot of the hourly wage increases were driven by two things primarily: more liberal municipalities, and a scarcity of workers from Covid,” Gimbel said. “I don’t see a lot of wage growth this year.”

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