Total nonfarm payroll gains have been somewhat lackluster at the start of 2025, but the February numbers may not tell the whole story. For this month, these gains came in slightly below expectations and the unemployment rate increased slightly, while employment gains for January were revised downward, according to the U.S. Bureau of Labor Statistics (BLS).
The BLS jobs report released March 7 reinforces the recent narrative that the U.S. labor market and broader economy are cooling. However, the extent and nature of this slowdown are very difficult to determine due to a highly uncertain policy environment.
A lack of clarity surrounding federal layoffs, spending cuts, and immigration and trade policy has created a complex, rapidly evolving business environment for many firms. Due to this uncertainty, the latest jobs report likely fails to fully capture current labor market conditions.
Let’s dive deeper into the numbers to see what the latest jobs data says about the current state of the labor market.
Employment Gains Slightly Below Analysts’ Expectations
Total nonfarm employment increased by 151,000 jobs in February 2025, falling short of analysts' expectations. Job gains in January were revised downward from 143,000 to 125,000, partially due to unusually harsh winter weather across much of the country. Based on this updated information, total nonfarm payroll gains have grown at an average rate of about 162,000 per month during the 12-month period from March 2024 through February 2025.
February’s modest employment growth may actually come as a relief after the most recent ADP private-sector employment report came in well below expectations. However, due to the nature of the data collection process, the BLS jobs report is a lagging indicator, meaning it fails to capture many developments in recent weeks (e.g., accelerated federal layoffs and related job losses stemming from contract cancellations and other spending cuts).
Total nonfarm employment grew in 15 out of 25 major industries in February 2025, largely driven by gains in health care and social assistance (63,100 new jobs). Other sectors that saw modest employment gains in February 2025 include construction (19,000 jobs), transportation and warehousing (17,800 jobs), and durable goods manufacturing (11,000 jobs). Government employment also grew by 11,000 jobs, though these gains were concentrated in state and local governments. On the other hand, six sectors saw employment declines between January 2025 and February 2025, including further decline in accommodation and food services jobs, which fell by 23,800 in February after declining by 17,500 in January 2025.
Unemployment Rate Ticks Up
Although labor underutilization rates have been low by historical standards for the better part of the last two years, recent evidence shows gradual rises in unemployment and underemployment. As of February 2025, the U3 rate (i.e., the traditional unemployment rate) edged up slightly to 4.1%, after dipping to 4.0% in January 2025. On the other hand, the U6 rate, which includes people marginally attached to the labor force and those working part-time for economic reasons (in addition to those captured in the U3 rate), rose to 8.0%, the largest month-over-month increase observed since July 2024.
The U3 rate tracks the share of labor force participants who are jobless but able to work and actively seeking employment. The U6 rate includes people who are marginally attached to the workforce and those working part-time for economic reasons (in addition to the set of unemployed people captured in the U3 rate).
Wage Growth Eases in February, Remains Elevated
Despite the less-than-stellar nonfarm payroll gains, one bright spot for employers is that year-over-year growth in average hourly earnings eased to 4% in February after showing signs of rising gradually in the latter half of 2024. This level remains elevated relative to recent historical standards, and concerns about inflationary pressures will certainly persist for the foreseeable future. Even so, any sign of moderation in wage growth is a welcome sign for employers concerned about rising compensation costs.
Labor Shortage Persists
The unemployed-people-per-job-opening ratio (UJOR) held steady at 0.9, with the latest available data showing that as of January 2025, there were roughly 690,000 more job openings than there were unemployed people. While these updated numbers do not yet capture the impact of the federal government’s workforce reductions and spending cuts, there are still hundreds of thousands more job openings than unemployed people. At the moment, recruiting and retaining talent remains challenging overall; however, increasing uncertainty about future economic conditions makes it very difficult to determine how the current labor shortage will evolve in the immediate future. For example, some employers may see an influx of former federal workers entering their talent pools, which could ease their recruiting challenges. With the federal workforce in transition, some industries and occupations may see a boost going forward.
The UJOR is the ratio of the unemployed population (i.e., people without a job who are able to work and actively looking for employment) to the number of open jobs at a given point in time. When the value of this ratio is below 1, it means that even if every unemployed person could be immediately matched to an open job, there would still be unfilled positions at the end of this matching process. These conditions necessarily indicate a labor shortage in the overall labor market, though it is worth noting that other labor market frictions (e.g., skills mismatches between job seekers and open positions) can create a labor shortage even when the UJOR is above 1.
What Do These Findings Mean for You?
Available evidence suggests that the labor market and broader economy are cooling; however, the extent and nature of this slowdown remain highly uncertain. Even though current metrics suggest that the labor market remains healthy by historical standards, conditions are evolving rapidly. As such, forthcoming data will be crucial in providing clarity with respect to the state of the labor market, especially regarding the impact of federal layoffs and job losses stemming from related cuts.
Sydney Ross is an economic researcher at SHRM.
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