Key Points:
- The US economy unexpectedly lost 92,000 jobs in February.
- The national unemployment rate ticked up slightly to 4.4 percent.
- A major healthcare strike and harsh winter storms distorted the data.
- The ongoing war in Iran is pushing oil prices and inflation risks higher.
A surprisingly weak jobs report for February has crushed hopes that the labor market is stabilizing. However, the Federal Reserve is unlikely to cut interest rates to help the economy right now. The ongoing war in Iran has triggered an oil price shock, creating a serious risk that inflation will spike again.
San Francisco Fed President Mary Daly admitted the numbers are worrying. “This jobs report has got my attention,” she told CNBC. She noted that the labor market looks weaker than officials previously thought, but she emphasized the central bank now faces “two-sided risks” because of the situation in the Middle East.
On Friday, the Bureau of Labor Statistics reported that the economy actually lost 92,000 jobs last month. Consequently, the unemployment rate crept up from 4.3 percent in January to 4.4 percent. To make matters worse, the government also revised the job numbers for December and January downward by a combined 69,000 jobs.
Several unusual events messed with the February data. A massive strike by Kaiser Permanente healthcare workers accounted for 30,000 of the lost jobs. Since healthcare has driven most of the recent job growth, this strike left a huge hole in the report. Severe winter storms across the country also kept many people out of work.
Because of these distortions, Daly prefers to look at January and February together. When you combine the massive job gains from January with the steep losses from February, the economy essentially created zero new jobs over the two-month period.
This puts the Federal Reserve in a terrible position. Normally, a shrinking job market would force the central bank to cut interest rates to encourage business borrowing and hiring. But they cannot afford to lower rates while the war in Iran threatens to push global oil prices higher. Ellen Zentner, an economic strategist for Morgan Stanley, said this combination of a weak labor market and sticky inflation will likely force the Fed to stay completely on the sidelines for now.
