The U.S. economy unexpectedly lost jobs in February and the unemployment rate increased to 4.4%, potentially hinting at a deterioration in labor market conditions that could put the Federal Reserve in a difficult spot amid rising oil prices.
The labour market weakened as the nonfarm payrolls fell by –92K in Feb-26 (Jan-26: +126K), far below market consensus of +59K jobs. This marks the second-largest decline since -140K in Oct-25, signaling renewed job shedding after the strong rebound in Jan-26. Employment fell in the health care (-28K), information (-11K), federal government (-10K), and manufacturing (-12K) industries. However, employment increased for social assistance (+9K).
The unemployment rate ticked up to 4.4% in Feb-26 (Jan-26: 4.3%), inching closer to Nov-25’s 4-year high of 4.5%. Wage growth improved as average hourly earnings increased marginally faster by +3.8%yoy (Jan-26: +3.7%yoy). Solid wage growth should help to underpin consumer spending, though rising gasoline prices and inflation expectations could pose a challenge and weaken consumer sentiment.
Signs of weakness in the US labour market, alongside rising oil prices, could place the Fed in a difficult position. A prolonged Middle East conflict may further weigh on employment as firms become cautious about the near-term business outlook. The Trump administration’s announcement of broader tariffs continues to fuel labour-market concerns. Nonetheless, MBSB believes markets still expect the Fed to keep its benchmark overnight rate unchanged at 3.50%–3.75% at the Mar-26 meeting.
