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February Jobs Report 2023: What to Expect

Economists everywhere are bracing for impact heading into this Friday’s February jobs report. Indeed, coming off of the lowest unemployment rate in more than half a century last month, Friday’s report will likely prove the latest m…

Economists everywhere are bracing for impact heading into this Friday’s February jobs report. Indeed, coming off of the lowest unemployment rate in more than half a century last month, Friday’s report will likely prove the latest macro bellwether for both the Fed and U.S. economy going forward. What should you expect?

Well, the consensus estimate project jobs grew by about 200,000 last month, reflecting a 3.5% unemployment rate. While this is a mild deterioration from last month’s unprecedented 517,000 jobs and the corresponding 3.4% unemployment rate, it’s still historically low.


This time, the jobs report’s importance lies in the Federal Reserve implications. The Fed has pushed interest rates higher time and time again, with seemingly, little to no macro backlash. Unemployment and consumer spending have held surprisingly firm in the face of one of the fastest rate hike campaigns in U.S. history.  You can only poke the tiger so many times.


“If we get a second strong jobs report [on Friday], it’s no longer an anomaly,” said Glassdoor’s Chief Economist Aaron Terrazas. “I think anything in excess of 230,000 to 250,000 job gains is going to be interpreted as a sign that the labor market is a lot more immune to higher lending costs than anyone anticipated.”

Interest rates and unemployment typically operate in conjunction with each other. Businesses frequently make job cuts when rates rise to compensate for higher interest payments. The corresponding layoffs usually work to lower demand in the country enough to ease inflation, the logic behind the Fed’s seemingly endless slew of rate hikes.


In that regard, Terrazas’ point is even more poignant. If unemployment continues to fall, it would likely be cause enough to merit even more aggressive rate-hikes. At least, that’s the narrative the Fed has maintained.

Federal Reserve in Rear View Heading Into February Jobs Report

Fed Chair Jerome Powell testified before Congress earlier this week, emphasizing the likelihood that the central bank would have to raise its terminal rate higher than previously assumed in the face of stubborn inflation and unemployment.


“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated […] If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Powell is likely referencing the strength of the January jobs report. An undisputable anomaly, January’s hiring strength was strange by almost every standard. The factors involved in last month’s report show how bizarre the numbers are.


According to some economists, the unseasonably warm weather in January likely played a role in keeping the labor market tight. Unfortunately, February was also comparably tropical.


“‘Given how warm February was, there is a risk of another upside surprise in the jobs data like there was in January with the gain of 517,000, even as the Bureau of Labor Statistics tries to correct for the seasonal noise,’ said Joe Brusuelas, Chief Economist at RSM. ‘Even if there is a healthy downward revision to the January estimate, it will require another month at least for the noise in the data to be corrected and the true pace of hiring to be understood.’”

The “downward revision” Brusuelas referenced was another factor in January. Every year the labor department adjusts its benchmarking process to accommodate an ever-changing population. The adjustment is an attempt to account better for influences of predictable seasonal changes to understand the actual employment situation. As it just so happens, January experienced a notable seasonal adjustment, though most economists agree it’s not the sole cause behind the strangely strong report.


Just How Much Medicine Does the Economy Need?

As it stands, most economists are likely rooting for higher unemployment. As backward as it may seem, if unemployment continues to hover around historic lows, the Fed will likely be forced to rate hikes further. With recession fears continuing to bubble over, more rate hikes could prove the straw that broke the camel’s back.

In that regard, there are positive signals heading into Friday. A new round of labor turnover data was released earlier this week, showing a drop in the number of available positions alongside rising layoffs and falling quits.


“Some of this intense period of openings and churn that we’ve been seeing might be reducing a little bit, and I think that’s a good sign for the Fed,” said Layla O’Kane, Senior Economist at Lightcast.


According to new data, U.S. employers announced 77,770 job cuts in February. Not only is this more than four times higher than in February 2022, but it’s also the highest level for the month since 2009. Another promising sign that labor is starting to taper off, the trend will likely need to continue to save the U.S. economy from an increasingly hawkish Fed.

Friday’s jobs report and next Tuesday’s Consumer Price Index (CPI) inflation report are top of mind for economists. Like the groundhog, we may be in for a longer-than-expected Fed-induced winter if the data comes out less than stellar.


On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.


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