US President Donald Trump’s cuts to the government workforce have started to hit, but overall hiring last month remained stable as growth in other sectors offset those losses.
The Labor Department said federal employment dropped by 10,000 in February.
Across the economy, employers added 151,000 jobs, while the unemployment rate ticked up to 4.1%, from 4% in January.
The monthly report from the government is a closely-watched signal of economic health that was under particular scrutiny this month, amid rising concern about the economic disruption sparked by Trump administration policy changes.
Analysts had been forecasting about 170,000 new jobs. The monthly gain in February was similar to the average monthly rise of 168,000 over the past year, the Labor Department said.
Hiring was driven by healthcare and financial firms. The manufacturing sector also added about 10,000 jobs, gains that were highlighted by the Trump administration.
Government hiring slowed sharply, while analysts cautioned that the report did not yet reflect the full extent of the cuts that the White House has announced.
Seema Shah, chief global strategist at Principal Asset Management, said the report felt “reassuringly in line with expectations, showing payrolls growth only modestly weaker than in recent months”.
“Yet, while the worst fears were not met, the report does confirm that the labour market is cooling,” she warned.
“Furthermore, with no shortage of headwinds confronting the US economy, the softening trend is likely to persist and may potentially deepen given the toxic combination of federal government layoffs, public spending cuts, and tariff uncertainty related inertia.”
Even before Donald Trump took office as president, financial analysts had been surprised at the long-running streak of growth in the US labour market, which came despite pressure from price increases and high interest rates.
In his first weeks, Trump’s changes to US policy have added to pressures on the economy, generating widespread uncertainty.
His changes include tariffs on America’s top three trade partners, some of which have since been reversed, and cuts to federal jobs and spending, efforts that are facing challenges in the courts.
In remarks at the White House, Trump acknowledged that “there could be some disturbance” in the economy. But he said he thought reducing the size of government and moving forward with tariffs would unleash private sector growth.
“I think the labour market’s going to be fantastic but it’s going to have high-paying manufacturing jobs as opposed to government jobs,” he said, adding that he could not commit to policy certainty on trade.
“There will always be changes,” he said.
Polls indicate that the moves have the support of his base. But financial analysts have warned that they are contributing to worries in financial markets, hurting consumer sentiment and fuelling weakness across a range of other economic indicators.
The latest jobs report showed average hourly pay up 4% compared with a year ago, but the number of people reporting they were working part-time because of slack business conditions jumped.
Separately, a measure of manufacturing showed new orders dropping sharply last month. Retail sales posted their biggest drop in two years in January, while foot traffic at major chains such as Target, Walmart and McDonald’s fell last month, according to data from tracking firm Placer.ai.
Private firm Challenger, Gray & Christmas reported that layoff announcements in February jumped to their highest level since July 2020, driven by government cuts.
But the number of companies warning of job cuts coming in the next few months also jumped, while starting to spread to new sectors, noted Andy Challenger, vice president of the firm.
The Labor Department report “falls squarely in line with big slow cooling of the labour market that we’ve seen for two years – that story of that nice soft landing,” he said.
“My expectation will be that as these get revised in the coming months, we’ll start to see this look worse than it does at first blush.”
Shares in the US were trading lower at around midday, with the S&P 500 down more than 1%.
