The monthly US non-farm payrolls is typically one of the most watched economic data releases and can move trillions of dollars in microseconds after its release. But Friday’s report will very likely have less airtime due to the ongoing Middle East conflict. The economic effects of that are obviously tough to call at present, but rising energy prices will impact inflation and current monetary policy at the Fed and other central banks, if they stay elevated and persistent. A weak jobs report could see markets start to worry about stagflation, that is low growth and high inflation. For now, the jobs data paints a picture of the US economy in February that will inform officials ahead of the FOMC meeting on March 17-18.
Consensus expectations
The February report is expected to show payrolls rising by 60,000 jobs, after a surprisingly strong 130,000 gain in January. That would be just above the estimated 50k breakeven pace, which is the number needed to keep the unemployment rate steady and which Fed Chair Powell has previously commented on. The jobless rate is forecast to stay unchanged at 4.3%, just below the end-2026 current FOMC median forecast of 4.4%. Wage growth is predicted one-tenth lower at 0.3% m/m and 3.7% y/y. Cold weather from late January could mean a lower headline print, but this wouldn’t necessarily signal any major weakening in underlying hiring conditions.
Benchmark revisions were important last time and are worth going over. The revisions are where the Bureau for Labor Statistics (BLS) realigns their sample-based employment estimates with unemployment insurance population counts. A preliminary overestimate of 911k (roughly 76k per month) was seen for March 2025 but was revised down to 898k on a seasonally adjusted basis. That meant the average monthly job growth for 2025 was actually 15k, significantly lower than earlier estimates, and highlighting an anaemic hiring pace last year.
Employment indicators and other factors
Early high-frequency indicators, like jobless claims, ADP’s weekly private sector employment estimate and Indeed daily online job postings have generally pointed to improving labour market conditions into February. Weekly initial jobless claims were steady over the comparable survey periods, while continuing claims rose slightly. That said, JOLTS job vacancy figures highlight that some labour market conditions have softened. Job openings recently fell to the lowest level since September 2024 with the unemployed ratio dropping to its weakest since March 2021. Historically, this has predicted slower wage growth with a lag time of roughly six months.
We will also check out the details ‘under the hood’ regarding which sectors are generating any new jobs. Since December 2022, roles added to the economy have come from just three sectors, Government, private health and education, and leisure and hospitality. As we have said previously, these jobs are typically not associated with being growth engines of the economy as they are lower paid, less secure and often part-time. If we strip out those sectors, payrolls would have dropped over the past several months.
Fedspeak on jobs
The data is among the last major releases before the Fed’s March meeting and comes as attention sharpens on how artificial intelligence could affect the labour market and broader economy. Regarding Fed policy, officials view the labour market as stable and resilient, having cooled gradually and now showing signs of stabilising. Indeed, that was the word Fed Chair Powell used at the January FOMC meeting. With unemployment historically low, officials’ focus may be shifting more towards inflation dynamics, especially with the conflict in the Middle East and its potential impact on energy prices.
The current FOMC central projection on interest rates in 2026 is for one 25bp rate cut, though some favour no cuts and others pencil in two or more, highlighting a still highly divided central bank. Soaring oil prices will obviously garner attention and the risk to the inflation outlook is clearly up due to the war in the Middle East causing energy supply disruptions.
Money market pricing & reaction
Fed funds futures have shifted quite sharply in response to developments in the Middle East. They currently price less than two 25bp cuts by the end of 2026 versus current policy, implying roughly 45bps of easing from the present 3.50–3.75% range.​ This was near 60bps of cuts a week ago. The first cut is not fully priced into until September now, having been pushed back from June.