The US labor market is showing signs of strain that go beyond seasonal noise. The Bureau of Labor Statistics reported that the hiring rate dropped to 3.1% in February, with just 4.8 million hires recorded — the lowest reading since April 2020, when large swaths of the economy were physically shut down due to the pandemic. Job openings fell to 6.9 million, down 358,000 from January. The quits rate held at a subdued 1.9%, layoffs remained pinned at 1.1%, and retirements edged back near record lows.
The 2020 comparison is what has economists unsettled. Back then, the collapse in hiring had an obvious explanation: businesses were closed. This time, unemployment sits around 4%, companies are operating normally, yet the pace of hiring has barely budged. Something more structural appears to be at work.
Heather Long, chief economist at Navy Federal Credit Union, described the current environment as a “brutal job market” for anyone trying to find new work. The hiring rate figure, she said, underscores just how little movement there is — not just at the top of the market, but across the board.
Nicole Bachaud, a labor economist at ZipRecruiter, characterised it as a “locked-out” market for new entrants. With retirements delayed and hiring stalled, the natural pipeline through which workers move into new roles has largely seized up. She noted that outside the 2020 collapse, you’d have to go back to 2014 — when the labor market was still crawling out of the Great Recession — to find hiring this weak.
Some of February’s weakness can be attributed to one-off factors. Blizzards and widespread power outages hit construction and hospitality — two of the sectors most exposed to weather disruption — particularly hard. Healthcare strikes also played a role. Skanda Amarnath, executive director of economic strategy firm Employ America, estimated that transient factors explain roughly half to 60% of the February drop. But he was clear that the rest reflects something more persistent.
He pointed to reduced immigration as one underappreciated drag. Less population growth means fewer people entering the workforce, less job switching, and less of the turnover that generates hiring activity in the first place. The system has less dynamism running through it.
Long flagged a particularly worrying detail in the sectoral breakdown. Hospitality and construction are normally the fallback options for displaced workers — the sectors where people land when they lose a job elsewhere. Seeing those industries decelerate is a different kind of warning sign than weakness in, say, finance or tech.
The data predates the impact of the ongoing conflict in the Middle East on energy markets, with Brent crude above $115 and the Strait of Hormuz effectively restricted. Bachaud warned that surging fuel costs would feed through into transportation, manufacturing, retail, and consumer spending — creating additional headwinds that would likely show up in the March figures.
Long was more direct: if companies start seeing their cost structures squeezed by energy prices, the progression from “not hiring” to “starting to lay off” is not a long one. She called the April jobs report — due in May — a potential first major warning signal if the trend continues.
For the Federal Reserve, the picture is complicated. Inflation was already running more than a percentage point above the central bank’s target before the energy shock, and trending in the wrong direction. Amarnath suggested the Fed may need to consider whether its policy is actually tight enough, rather than pivoting toward cuts. A labor market that weakens into an inflation spike is exactly the scenario the central bank has the least room to manoeuvre in.