Friday’s release of U.S. employment data for February will show that hiring has stabilized but remains weak, constrained by both supply and demand challenges.
We forecast a net increase in total employment of 70,000 positions, supported by sustained growth in health care and private education, along with a rebound in government hiring.
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We expect the unemployment rate to hold at 4.3%, with average hourly earnings rising by 0.3% on the month and by 3.7% annually.
In other words, the labor market is at full employment despite slowing monthly gains.
Looking ahead, the American labor market will be defined by long-term demographic constraints as baby boomers retire, tighter immigration, the end of labor hoarding by large firms, and growing evidence that firms are deferring the hiring of recent graduates.
Since 2023, the economy has added 3.34 million jobs, with health care accounting for 53%, or 1.77 million. An aging population continues to generate structural demand in that sector, offsetting cyclical weakness elsewhere.
RSM’s internal middle-market survey indicates that firms plan robust increases in productivity-enhancing capital expenditures and compensation, but have only modest plans to increase hiring over the next six months.
This suggests a sustained period of soft hiring as firms integrate new technology followed by a more labor-friendly phase as the technology is implemented. That recovery, however, will most likely favor experienced workers over the recent graduates.
The major items to watch in Friday’s report:
- A downward revision to the January estimate, consistent with the current 73,000 three-month average.
- Health care as the primary hiring driver, with broad softness elsewhere.
- A harsh winter likely weighing on construction employment, creating downside risk to the forecast.
- Slowing aggregate hours, signaling headwinds for overall consumer spending.
