US economy likely generated 160,000 jobs last month despite uncertain outlook

Economists predict that the US labour market continued to generate jobs last month, despite an increasingly uncertain outlook due to the Trump administration’s trade wars, federal employee purges and immigration policies.

The Labor Department is expected to reveal on Friday that 160,000 jobs were added in February, a modest increase from January’s 143,000. The unemployment rate is predicted to remain at a low 4%, according to economists surveyed by FactSet.

“Despite rising concerns about the health of the economy, momentum remains positive,” Lydia Boussour, senior economist at the tax and consulting firm EY, wrote in a commentary.

Billionaire Elon Musk’s purge of federal workers is not expected to have much impact on the February jobs numbers. The Labor Department conducted its survey of employers too early in the month for the Department of Government Efficiency layoffs to show up. “We expect to see a more visible dent to federal payrolls in March and subsequent months,” Boussour said.

Diane Swonk, chief economist at KPMG, anticipates a rebound in hiring within the leisure and hospitality sectors – encompassing hotels, restaurants, theatres – following a dip caused by January’s wildfires in Los Angeles.

“The key issue will be who shows up for the jobs,” she wrote in a commentary. Swonk noted that the Trump administration has revoked asylum for nearly 1m Venezuelan and Haitian refugees, “which may keep them from showing up to work or filling vacancies that native-born workers tend to shun. ”.

The American job market has remained remarkably resilient, but it has cooled from the red-hot hiring of 2021-2023. Employers added a decent average of 166,000 jobs a month last year, down from 216,000 in 2023, 380,000 in 2022 and a record 603,000 in 2021 as the economy rebounded from COVID-19 lockdowns.

Hiring continued despite high interest rates that had been expected to tip the United States into recession. The economy’s unexpectedly strong recovery from the pandemic recession of 2020 set loose an inflationary surge that peaked in June 2022 when prices came in 9.1% higher than they’d been a year earlier.

In response, the Federal Reserve raised its benchmark interest rate 11 times in 2022 and 2023, taking it to the highest level in more than two decades. The economy remained sturdy despite the higher borrowing costs, thanks to strong consumer spending, big productivity gains at businesses and an influx of immigrants who eased labor shortages.

Inflation took a dive, dropping to 2.4% in September, prompting the Federal Reserve to take action and cut rates three times in 2024. The reduction train was expected to keep rolling into this year, but inflation’s been on a bit of a standstill since the summer sizzle died down, and so the Fed’s put the brakes on.

Experts reckon that workers are pocketing slightly less per hour now – probably up just 0.3% last month, down from January’s 0.5% hike – a trend that might make the Fed smile, but won’t get them slashing rates come their mid-March huddle. In fact, all the market gurus hunched over their desks are betting against another slash till May at the earliest, and they wouldn’t stake their morning coffee on it, going by what we see on the CME Group’s FedWatch.

The word from the wise is that economic crystal balls are getting murkier by the minute with Trump’s tariff tango stirring up potential tax tsunamis on stuff coming in from abroad. “Steep tariff increases could cause adjustments in business decisions with knock-on effects on hiring and wages as business leaders navigate higher input costs and retaliatory measures,” according to Boussour.

He warns it might lead us down a path to a genuine job slow patch, skinnier wallets, and consumer spending squeezing into a corset, all while inflation blows up like a balloon.