BY EMMANUEL OGBONNA
American employers unexpectedly reduced payrolls by 92,000 jobs last month, an abrupt setback for the labor market that underscored growing economic pressure as businesses contend with rising costs and global instability. The Labor Department reported Friday that the unemployment rate edged higher to 4.4%, signaling that the labor market continues to face significant challenges despite hopes for a stronger recovery in 2026.
The disappointing figures marked a sharp reversal from January, when employers across the private sector, nonprofit organizations, and government agencies added a solid 126,000 jobs. Economists had widely anticipated that February would bring continued improvement, forecasting roughly 60,000 new positions. Instead, hiring deteriorated markedly, catching analysts and policymakers off guard.
Revisions to previous employment data further darkened the outlook. The government trimmed a combined 69,000 jobs from payroll estimates for December and January, suggesting the labor market had been weaker than initially believed even before February’s losses were recorded.
The unexpectedly weak employment report arrives at a moment of mounting global uncertainty, particularly as the war involving Iran and military strikes carried out by the United States and Israel have pushed oil prices sharply higher. The surge in energy costs has created additional financial strain for businesses already grappling with tight margins and has increased expenses for consumers, raising concerns about the broader economic outlook.
Heather Long, chief economist at Navy Federal Credit Union, said the labor market is struggling under the weight of multiple economic pressures.
“The job market is struggling in the face of so many headwinds,” Long said. “Companies are going to be even more reluctant to hire this spring until the war ends and they can see consumers still spending. It’s a tense time for the U.S. economy.”
Many economists had hoped the labor market would rebound this year following a disappointing performance in 2025. During that year, hiring slowed dramatically as employers confronted a range of challenges including shifting trade policies, high borrowing costs, and government workforce reductions. Employers added an average of just 15,000 jobs per month throughout 2025, a pace that raised concerns about the durability of economic growth.
Optimism for a recovery in 2026 increased after January’s stronger-than-expected hiring figures suggested that businesses might be regaining confidence. February’s sharp contraction in employment, however, has cast doubt on whether the labor market is truly stabilizing.
Olu Sonola, head of U.S. economics at Fitch Ratings, said the latest report significantly weakens the case that the job market has regained momentum.
“Just when it looked like the labor market was stabilizing, this report delivers a knock-down blow to that view,” Sonola said. “It’s bad news whichever way you look at it.”
Job losses in February were broad-based, affecting several major sectors of the economy.
Construction companies eliminated roughly 11,000 jobs, a decline that economists partly attributed to severe winter weather in parts of the country that likely slowed building activity and delayed projects. Manufacturing also continued its long stretch of weakness, with factories cutting 12,000 jobs. The sector has now recorded employment declines in 14 of the past 15 months, reflecting sluggish demand and ongoing adjustments within the industrial economy.
The service sector, which has often provided a buffer during economic slowdowns, also experienced notable losses. Restaurants and bars shed nearly 30,000 jobs, while firms in administrative and support services eliminated close to 19,000 positions. Courier and messenger companies cut nearly 17,000 jobs as well, suggesting that logistics and delivery services may be feeling the effects of softer consumer demand.
Healthcare, which has been one of the strongest contributors to job growth in recent years, also posted a significant decline. The sector lost about 28,000 jobs during the month, largely reflecting the impact of a major labor dispute. More than 30,000 nurses and other frontline healthcare workers at Kaiser Permanente facilities in California and Hawaii staged a four-week strike, temporarily disrupting employment figures.
Not all sectors saw declines. Financial firms added about 10,000 jobs in February, offering one of the few bright spots in the report. However, the financial sector has also experienced layoffs earlier in the year as institutions restructure and adapt to shifting market conditions.
Despite the slowdown in hiring, wages continued to rise at a moderate pace. Average hourly earnings increased by 0.4% from January and were up 3.8% compared with the same period a year earlier. The wage gains indicate that employers still face competition for skilled workers even as overall hiring weakens.
The broader economic outlook remains clouded by uncertainty linked to the conflict involving Iran. The surge in oil prices has raised fears that higher energy costs could feed inflation at the same time the labor market is weakening.
This combination of slow job growth and rising inflationary pressure presents a difficult challenge for the Federal Reserve, which must balance its mandate of maintaining stable prices while supporting employment.
Eugenio Aleman, chief economist at Raymond James, said the situation presents a particularly difficult policy dilemma.
“This is probably the worst scenario for monetary policy,” Aleman said, noting that efforts to stimulate hiring by lowering interest rates could risk further fueling inflation.
Business hiring decisions have also been influenced by the lingering effects of U.S. trade policies. In 2025, companies faced uncertainty stemming from a series of tariffs introduced by President Donald Trump, many of which were rolled out unpredictably and complicated long-term planning for manufacturers and importers.
While some of those trade tensions eased after the United States reached a truce with China and negotiated agreements with major partners including Japan and the European Union, the earlier disruptions forced many businesses to rethink supply chains and pricing strategies.
Over time, companies have learned to offset some of the costs associated with tariffs, often passing those expenses on to consumers through higher prices.
Brian Bethune, an economist at Boston College, said the tariffs initially came as a shock to corporate planning.
“Trump’s 2025 tariffs were a shock to companies’ business plans,” Bethune said. “Now, just as they’ve adjusted to them, suddenly their 2026 business plans are being disrupted again by rising fuel costs caused by the war with Iran.”
Some companies, however, remain cautiously optimistic about the year ahead. Jay Foreman, chief executive of toy manufacturer Basic Fun, said his company expects financial relief after the Supreme Court struck down the largest tariffs imposed by the Trump administration last month. The ruling potentially allows importers to recover some of the duties they previously paid.
Foreman said such refunds could allow the Boca Raton, Florida-based company, known for producing toys such as Lincoln Logs and Care Bears, to invest more heavily in its operations, increase employee pay, and expand hiring.
“We are expecting a record year,” Foreman said.
Still, uncertainty remains. Foreman estimates that under newer tariffs proposed by the administration, Basic Fun’s tariff costs could more than double this year to about $15 million. The increase would partly reflect a full year of tariff payments in 2026, whereas the levies were introduced gradually during the previous year.
For many businesses across the United States, the combination of higher fuel costs, uncertain trade policies, and fragile consumer demand continues to complicate hiring decisions. February’s employment report suggests that until those pressures ease, the labor market may struggle to regain the momentum that policymakers and economists had hoped would emerge in 2026.
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