Stocks Reverse on Hiring Slowdown Worries: March 7, 2025

A better-than-feared Jobs Report this morning lifted equities and sparked bond buying, but the boost to investor sentiment was short lived as market participants returned their focus to economic downturn worries, causing stocks and yields to head south. Also this morning, a modest uptick in the unemployment rate amidst a weaker-than-expected payroll gain is increasing the likelihood that the Federal Reserve will reduce rates several times this year. The central bank has been quick to respond to labor market risk while being increasingly patient on inflation. Meanwhile, the effects of curtailing government spending will likely be felt in next month’s print, but this morning’s labor publication reflected the ramification of immigration restriction with the labor force participation rate slumping to a 25-month low. And in another sign of employment deceleration, the average hourly work week remained at 34.1 as companies trimmed schedules to cut costs rather than lay off individuals, with the metric reaching the lightest level since March 2020 and before that, June 2010.

Hiring Picks Up Modestly

US employers increased hiring slightly last month despite 385,000 people leaving the labor force, which contributed to an increase in joblessness. The domestic economy added 151,000 jobs last month, lighter than the 160,000 expected and the 125,000 from January. Roughly half of the gains came from the non-cyclical private education and health services sector, which boosted rosters by 73,000. Financial activities, construction, transportation/warehousing and government lifted payrolls by 21,000, 19,000, 17,800 and 11,000. Adding at more modest degrees of 10,000 or less were the manufacturing, wholesale trade, mining, utilities, information and other services. Leisure/hospitality and professional/business services lost 16,000 and 2,000 employees.

Unemployment Rate Increases Modestly

A meaningful reduction in labor force participation boosted the unemployment rate to 4.1%, above projections of an unchanged 4%. The labor force participation rate slipped to 62.4%, the lightest number since January of 2023 and almost a full percentage point beneath the pre-pandemic level of 63.3% in February 2023. Wage pressures remained strong, climbing 0.3% month over month (m/m) and 4% year over year (y/y), in-line on the former but a tenth of a percent softer on the annualized figure.

Jobs Friday Eases Labor Angst

This morning’s print quelled fears that employment growth would slow below the psychologically important 100,000 level, but next month’s report will likely be less than six figures, reflecting government downsizing efforts as well as the persistent lid on labor supply that immigration restriction has fostered. But a continued deceleration in hiring amidst a continued uptick in unemployment is not terrible if you’re a bond and equity bull, as slower growth and increased joblessness pave the way for Fed cuts. However, landing the economic plane softly is always a risk and drifting into negative payroll land would be present a significant drag on economic activity and risk assets.  

International Roundup

Europe’s employment climbed 0.7% and 0.1% y/y and quarter over quarter (q/q) during the final three months of 2024. The y/y result exceeded the analyst target of 0.6% but fell from 1% in the third quarter while the q/q performance met expectations despite slowing from 0.2% in the preceding period. Meanwhile, GDP grew 1.2% y/y during the same period and 0.2% q/q. Analysts expected rates of 0.9% and 0.1%.  

Canada Job Additions Weaken

Canada’s economy added 1,100 workers in February, substantially less than 19,700 predicted by analysts and the 76,000 individuals put on payrolls in the first month of the year, a result, at least in part, of the country bracing for a trade war with the US. Severe winter storms also caused 429,999 employees to lose work hours, according to Statistics Canada. While the number of part-time workers increased by 20,800, which is down from the 40,900 additions in January, the tally of full-time employees declined by 19,700 after increasing by 35,200 in the preceding month.

In a related matter, the country’s labor participation rate, or percentage of working age population that is either seeking work or employed, dropped from 65.5% to 65.3%, its first decline since September. The unemployment rate, which was expected to climb from 6.6% in January to 6.7% last month, recorded no change.

China’s Export Growth Weakens

China’s exports expanded 2.3% y/y last month, missing the 5% analyst consensus forecast and moderating significantly from the 10.7% in January. Imports, however, declined 8.4% after recording a 1% gain in the first month of the year. Analysts expected imports to increased at the same pace as January. The increase in exports and declining imports resulted in the country’s trade surplus climbing from $104.8 billion to $170.5 billion. Exports were sustained by businesses frontloading shipments of products to avoid anticipated tariffs by the US while the decline in imports may have been driven, at least in part, by the country’s efforts to build its own sources of grains, iron ore and crude oil. Additionally, warm weather and increased use of electric vehicles curtailed oil demand.

UK Home Prices Drop

Home prices in the United Kingdom sank 0.1% m/m in February after climbing 0.6% in the preceding month but are still up 2.9% y/y, according to the Halifax Home Price Index. Analysts anticipated a 0.5% m/m increase and the y/y pace to accelerate to 3.1%. The m/m decline resulted from the deadline for buying homes prior to an increased transaction tax, or stamp duty, starting in April. The conveyance process must be started before then to avoid the higher tax, limiting the volume of sales last month.