US Jobless Rate Hits 2-Year High

February 2023 Unemployment Increase

In February 2023, the US observed an increase in its unemployment rate, rising to 3.9% from the previous 3.7%, the highest level in over two years. This increase occurred alongside the creation of 275,000 nonfarm payroll jobs, a number higher than what economists had forecasted.

Despite this job growth, several factors contributed to the rise in unemployment. Revisions to job growth data from previous months indicated a softer labor market than initially believed. The revision reduced the total number of jobs added in December and January by 167,000, suggesting a cooling labor market.

The Labor Department’s report also outlined other contributing factors, such as a modest rise in wages at 0.1% month-to-month for February, below the expectations set by economists. This weaker wage growth, coupled with the adjusted job gains from past months, contributed to the rising unemployment rate. The mix of data signals some softening in what has been a robust labor market. The dynamics within February’s labor statistics, from the job additions to the unemployment shift, reveal a complex labor market adjusting to various economic conditions, reflecting broader changes within the US economy during this period.¹

Impact on Federal Reserve Policy

As the February job report reaches Federal Reserve policymakers, the combination of strong job additions, an uptick in unemployment, and subdued wage growth presents a complex situation that could influence monetary policy in the near term. The significant gain of 275,000 jobs overshadows the downward revision of prior months and suggests economic strength. However, the subtle details within the numbers, notably the increase in the unemployment rate to 3.9% coupled with mild wage growth, indicate a labor market that’s growing but not overheating.

This balance between robust job increases and other softening metrics could potentially influence the Federal Reserve towards a more cautious approach in its next moves, possibly delaying aggressive rate hikes to avoid hindering economic growth.

A key aspect under scrutiny is wage growth, marking a mere 0.1% rise in February, indicating easing inflationary pressures.² This development might provide the Federal Reserve with reason to be cautious with future rate adjustments. Analysis of these diverse metrics—the substantial job additions against the backdrop of an unemployment rate moving upwards and moderated wage inflation—sets the Fed on a complex decision-making path. The combination of increased job opportunities with moderated wage growth holds dual implications: a still-growing economy but with signs that could indicate a cooling phase.

Sector-Specific Job Gains and Losses

In February, the job landscape presented a mix of sectors showing strength in employment opportunities alongside areas experiencing declines.

• The healthcare sector emerged as an area of growth, adding 67,000 positions, demonstrating the sector’s resilience and ongoing demand for medical services.
• Government roles also saw a notable rise, contributing 52,000 jobs to the market, showing increased state involvement in various capacities.
• On the other hand, the technology industry experienced a series of layoffs affecting worker figures, particularly in California where the tech-heavy regions felt the impact of job reductions.

The hospitality and social assistance sectors showed significant activity, aligning with the leisure and care-driven demands of society. Restaurants, bars, and related establishments increased their workforce by 42,000, highlighting a recovery in consumer patronage and revival post-pandemic downturn.³ Meanwhile, private education and health services in California alone recorded an increase of 15,400 jobs, indicating areas where public interest and needed services converge for employment growth.

These sectoral shifts highlight the evolving economic landscape, balancing gains with losses as the labor market adapts to a new normal.

California’s Unemployment Situation

California’s recent surge in the unemployment rate to 5.3%, making it the highest in the U.S., has its roots in several significant factors. The tech sector has experienced substantial layoffs, contributing to the state’s unemployment situation. Major firms in the technology sector previously overstaffed during the pandemic’s peak but have since been reducing their workforce, acknowledging a shift toward artificial intelligence startups that, despite being innovative, offer limited job creation at this stage.⁴ The occurrence of tech sector layoffs is reflective of broader challenges within California’s labor market, including the adjustments businesses are making to incorporate new technological innovations and efficiency measures.

Another significant factor influencing California’s unemployment figures is its high cost of living, which has a dual impact: discouraging the entry of new workforce members and facilitating a steady pace of layoffs among existing employees, especially in entry-level positions. This issue is intertwined with California’s strict regulations and the severity of business lockdowns during the pandemic, which were more stringent than in many other states, the effects of which continue to dampen job market dynamism.

The resulting scenario showcases a reflection not just of structural changes within key economic sectors but also highlights the state’s unique challenges, ranging from economic policy, living costs, to the evolution in the tech industry.

1. US Bureau of Labor Statistics. The Employment Situation – February 2023. News Release. March 10, 2023.
2. Federal Reserve Bank of Atlanta. Wage Growth Tracker. Updated March 16, 2023.
3. National Restaurant Association. Restaurant Industry Facts at a Glance. 2023.
4. CompTIA. IT Industry Outlook 2023. January 2023.