We think the result is strong enough to allow the Fed to signal it will stay on hold for now, as it assesses trade-offs between looming inflation risks from tariffs and downside risks to the economy emanating from tariffs and other policy changes out of Washington.
Good enough: A 151k gain in February nonfarm payrolls shows US job growth still proceeding at a clip that should be sufficient to keep the unemployment rate steady (a breakeven pace of 100-150k, and plausibly the lower end of that range) over time. We remain attuned to the risks that nonlinearities in the economy could materialize via confidence effects – both business and consumer – on account of tariffs and efforts to restrict the size of the federal government.
For the Fed, we think the data validates recent messaging that officials would prefer to remain on hold for now as they assess the trade- off between i) upside inflation risks due to tariffs and drifting inflation expectations, and ii) any possible slowdown in activity related to business uncertainty and policy changes emanating from the Trump administration. Fed Chair Powell will speak later Friday, and we will watch for any sense the balance is shifting from the current setting where upside risks to inflation are perceived as more prominent.
A sharper slowdown from business uncertainty may yet appear. It was just too early to see this here. We did see federal government employment excluding the postal service drop by 7k, in line with our view that the hiring freeze instituted in January would account for drag of 5k-10k. A bigger step down in government employment is possible over time. On balance, though, there is little basis in the hard data for the Fed to change its view that growth remains broadly resilient while upside risks to inflation have mounted in recent months.
Solid payrolls, weaker household survey: Turning to the details, this was a solid report on the payroll side with a 151k headline NFP print (versus BNPP est. 170k; consensus: 160k). The prior two months were minimally revised, leaving the three-month moving average (a smoother yardstick of labor demand) at 200k. That is above our estimate of the breakeven pace of payroll employment (100k-150k). Fed officials’ numbers likely tilt to the low side, with Governor Waller floating 80k-100k and Atlanta’s Bostic citing 75k-100k.
The household survey was more downbeat. Employment on this measure fell 588k, though volatility is typical in these numbers. The unemployment rate rose 0.1pp (4.1% versus 4.0% prior), a move that would have been larger had the participation rate remained steady. In a big-picture sense, the current level of the jobless rate is still below the Fed’s estimate of longer-run neutral (see below).
