U.S. Payrolls Contract 92,000 as Labor Market Turns Negative for First Time Since 2020
February jobs report shows economy shedding workers across nearly every sector, pushing unemployment to 4.4% and accelerating Federal Reserve rate cut expectations.
The U.S. economy shed 92,000 jobs in February, the first monthly contraction since December 2020 and a significant miss against consensus expectations of 50,000 additions, according to data released Friday by the Bureau of Labor Statistics.
The unemployment rate rose to 4.4% from 4.3% in January, while economists had expected it to hold steady. This marks the third time in the past five months that payrolls declined, signaling a Labor Market that has shifted from gradual cooling to potential deterioration. The report comes amid a crosscurrent of economic pressures, including a U.S. war on Iran that has driven oil prices upward, raising fresh fears of renewed inflation, and a lack of clarity over the Trump administration’s tariff agenda.
The deterioration was compounded by sharp downward revisions to prior months. January’s previously reported 130,000 payroll additions were revised down to 126,000, while December’s figure was cut from a gain of 50,000 to a contraction of 17,000, according to NBC News. With those revisions, 2025 was the first year to record five months of labor market contractions since 2010, as the economy was recovering from the global financial crisis.
Broad-Based Job Losses Across Sectors
The February decline was notable for its breadth. Healthcare, the primary sector holding up payrolls through most of 2025, went negative in February, with job loss occurring in nearly every sector of the economy, according to Indeed Hiring Lab.
Health care saw a loss of 28,000 jobs due largely to a strike at Kaiser Permanente that sidelined more than 30,000 workers in Hawaii and California, reported CNBC. Offices of physicians lost 37,000 jobs in February, primarily due to strike activity, while hospitals added 12,000, according to the Bureau of Labor Statistics. Though the strike ended February 23, it occurred during the BLS survey week, temporarily distorting the headline number.
| Sector | Change (000s) |
|---|---|
| Health Care | -28 |
| Leisure & Hospitality | -27 |
| Manufacturing | -12 |
| Construction | -11 |
| Information Services | -11 |
| Transportation & Warehousing | -11 |
| Federal Government | -10 |
| Social Assistance | +9 |
Beyond healthcare, transportation and warehousing also saw a reduction of 11,000, and the weather-sensitive construction industry lost 11,000 after surging by 48,000 in January. Employment in information continued to trend down in February with a loss of 11,000 jobs, having lost an average of 5,000 jobs per month over the prior 12 months.
Federal government employment fell 10,000 for the month, bringing total reductions to 330,000 jobs, or 11% of the total workforce, since October 2024, according to CNBC. Social assistance was one of the few bright spots, adding 9,000 jobs.
Wage Growth Defies Labor Market Weakness
In a paradoxical development that complicates the Federal Reserve’s policy calculus, wage growth accelerated even as employment contracted. Average hourly earnings increased 0.4% for the month and 3.8% from a year ago, both 0.1 percentage point above forecast, reported CNBC.
This divergence between falling employment and rising wages suggests either compositional effects—lower-wage workers being disproportionately affected by job losses—or continued labor market tightness in specific high-skill sectors. Wage growth was stronger than expected at a 0.4% monthly gain that lifted the annual rate to 3.8%—still above inflation, according to CNN.
Long-Term Unemployment Surges
Beneath the headline numbers, signs of labor market stress are accumulating. Long-term unemployment also surged higher, with the average duration of unemployment at 25.7 weeks, the longest since December 2021, according to CNBC.
The number of long-term unemployed—those jobless for 27 weeks or more—was little changed at 1.9 million in February but is up from 1.5 million a year ago, accounting for 25.3% of all unemployed people, reported Fox Business. This suggests that while layoffs remain contained, those who do lose jobs are having increasing difficulty finding new employment.
“I think it just tells us that the hopes that the labor market was steadying, maybe that was too much. We also have inflation printing above target and oil prices rising. How long they last, we don’t know, but both of our goals are in our risks now.”
— Mary Daly, President, Federal Reserve Bank of San Francisco
Fed Rate Cut Timeline Accelerates
The weak employment data immediately reset market expectations for Federal Reserve policy. Following the payrollsReport, traders pulled forward expectations for the next cut to July and priced in a greater chance of two cuts before the end of the year, according to CME Group’s FedWatch gauge cited by CNBC.
Fed Governor Christopher Waller said earlier in the morning that a weak jobs report could impact policy, noting he has been in the minority of Federal Open Market Committee members pushing for cuts soon, stating “If we get a bad number, January’s revised down to some really low number… the question is, why are you just sitting on your hands?”
The data arrives at a pivotal moment for monetary policy. Jerome Powell’s term as Fed Chair expires in May 2026, with President Trump having nominated Kevin Warsh as his replacement. The transition adds uncertainty to the rate path, though Bankrate’s 2026 Interest Rate Forecast projects three cuts totaling 0.75 percentage point in 2026.
The Federal Reserve cut rates by 1.75 percentage points between September 2024 and the end of 2025, bringing the benchmark federal funds rate to a current range of 3.5% to 3.75%. The central bank has held rates steady at its January 2026 meeting, with officials citing solid economic activity and elevated inflation. The February jobs report significantly alters that calculus by suggesting the labor market may be weakening faster than policymakers anticipated.
Market Reaction and Economic Outlook
Financial markets sold off sharply on the data. Dow futures slumped 657 points, or 1.37%, while S&P 500 futures fell 1.3% and futures tied to the Nasdaq 100 sank 1.6%, according to CNN.
The deterioration in employment comes against a backdrop of otherwise solid economic indicators. Economic growth has been solid, with reports this week showing that both the services and manufacturing sectors are expanding, though there are growing signs that most of the spending is being done by upper-income earners.
Even adjusting for the Kaiser Permanente strike, payrolls would have been deeply negative, noted Indeed Hiring Lab, suggesting the weakness extends beyond temporary distortions.
- February payrolls fell 92,000, the first negative print since December 2020, missing expectations by 142,000 jobs
- Prior months were revised down by a combined 69,000, making 2025 the first year since 2010 to record five months of job losses
- Healthcare employment turned negative for the first time in over a year, losing 28,000 positions
- Long-term unemployment duration hit 25.7 weeks, the highest since December 2021
- Markets now price in Fed rate cuts beginning in July, with two total cuts expected by year-end
What to Watch
The March employment report, due April 3, will be critical in determining whether February represented a temporary weather- and strike-distorted anomaly or the beginning of a more sustained deterioration. The Kaiser Permanente strike resolution should add roughly 30,000 jobs back in March, providing a technical boost to the headline number.
Beyond the headline payroll figure, watch for revisions to the establishment survey’s seasonal adjustment factors, labor force participation trends among prime-age workers, and any acceleration in initial jobless claims. The divergence between strong wage growth and falling employment bears close monitoring—if it persists, it may indicate a shift toward quality over quantity in hiring, with firms competing for a shrinking pool of skilled workers while cutting lower-wage positions.
The Federal Reserve’s March 17-18 meeting will provide clarity on whether policymakers view the labor market weakness as sufficient to warrant earlier rate cuts. With inflation still running above the 2% target and oil prices elevated due to geopolitical tensions, the Fed faces a narrowing path between supporting the labor market and maintaining price stability. The transition to new leadership under Kevin Warsh in May adds another layer of uncertainty to an already complex policy environment.