Weekly Economic Snapshot: Labor, Services, & Manufacturing’s Cautious Growth
Last week's economic reports presented a narrative similar to what we’ve seen over the past few months: resilience coupled with concerns. The labor market demonstrated continued strength, but with signs of moderation. Both the service and manufacturing sectors expanded, yet each revealed underlying vulnerabilities. The service sector's growth was tempered by uncertainty regarding tariffs and federal spending cuts, while manufacturing faced rising inflationary pressures. Compounding these concerns, recent GDP forecasts have shown negative growth in the first quarter, further fueling market volatility. These factors have collectively contributed to the market wiping out nearly all gains seen since the November election, leaving investors and policymakers navigating a landscape marked by uncertainty and shifting economic tides.
Employment Report
The U.S. labor market added fewer jobs than expected in February but remained strong. The latest employment report showed that 151,000 jobs were added last month, falling short of the expected 159,000 but a slight pick up from January’s 125,000 gain. Meanwhile, the unemployment rate unexpectedly inched up to 4.1% from 4.0% in January, remaining near historically low levels. Wage growth also remained stable, with average hourly earnings increasing by 0.3% from the previous month, aligning with expectations. Annually, wages grew by 4.0%, a minor acceleration from 3.9% in January but lower than the projected 4.1% growth.
The labor market has shown resilience, with 50 consecutive months of job growth, despite elevated interest rates in recent years. While the latest jobs report supports the narrative of resilience, concerns have arisen regarding a potential downturn due to mass layoffs of federal workers and ongoing tariff uncertainty.
ISM Services
The U.S. services sector continued to expand in February, marking its eighth consecutive month of growth. The ISM Services PM unexpectedly rose to 53.5 from 52.8 in January. The index was expected to inch down to 52.5. All four components that factor directly into the PMI were in expansion territory last month. Despite this, the business activity subindex reported slower growth, primarily due to concerns regarding tariffs and federal spending cuts. The services sector has now expanded in 24 of the last 26 months, dating back to January 2023. However, respondents indicated significant uncertainty about the future and expressed doubt regarding continued growth.
