EB SECURITIES February Non-Farm Payroll Data Review: Government Layoffs Impact Gradually Emerging, U.S. Job Market Under Pressure

According to the Zhitong Finance APP, Everbright Securities released a research report stating that in February 2025, new jobs in the United States showed a slight recovery, but were below market expectations. From the perspective of interest rate cuts, the recent weakening of U.S. economic data again verifies the previous viewpoint that there is a possibility of unexpected interest rate cuts by the Federal Reserve in 2025. From the employment data, the new jobs were below expectations, and the rising unemployment rate indicates pressure on the U.S. job market. The recent sustained high interest rate environment, combined with the fiscal tightening effect brought by the government's efficiency department before the implementation of tax cuts, helps to continue suppressing inflation. In the future, the end of the Russia-Ukraine conflict is also expected to help push oil prices down.

The main points of Everbright Securities are as follows:

Event: On March 7, 2025, the U.S. Department of Labor announced the non-farm data for February 2025: new non-farm employment increased by 151,000, expected 160,000, and the previous value was revised from 143,000 to 125,000; the unemployment rate in February was 4.1%, expected 4.0%, previous value 4.0%; average hourly wage increased by 4.0% year-on-year, expected to increase by 4.1%, previous value revised from an increase of 4.1% to an increase of 3.9%.

New jobs in the U.S. showed a slight recovery in February 2025, but were below market expectations. The decline in disturbances from California wildfires and extreme winter weather in January drove the increase in new jobs in February, with non-farm employment increasing by 151,000, higher than the previous increase of 125,000. However, starting in February, Trump's government layoff plan partially suppressed employment performance, with new jobs from the U.S. government dropping from the previous value of 44,000 to 11,000, leading to new non-farm employment in February being below the expected 160,000.

From the perspective of interest rate cuts, the recent weakening of U.S. economic data again verifies the previous viewpoint that there is a possibility of unexpected interest rate cuts by the Federal Reserve in 2025. From the employment data, new jobs were below expectations, and the rising unemployment rate indicates pressure on the U.S. job market. The recent sustained high interest rate environment, combined with the fiscal tightening effect brought by the government's efficiency department before the implementation of tax cuts, helps to continue suppressing inflation. In the future, the end of the Russia-Ukraine conflict is also expected to help push oil prices down, and there is a possibility of unexpected interest rate cuts by the Federal Reserve in 2025.

New non-farm employment showed a slight recovery, with employment in manufacturing and finance rebounding, while retail employment decreased.

Manufacturing: New jobs increased by 10,000, higher than the previous value of -5,000, possibly related to the decline in snowstorm disturbances. Finance, professional and business services: Employment rebounded, with new jobs increasing by 21,000 and decreasing by 2,000, respectively higher than the previous values of +14,000 and -39,000, possibly related to the loosening of interest rates again in late February. Retail: New jobs decreased by 6,000, lower than the previous value of +30,000, reflecting the impact of tariffs on consumer confidence.

Labor participation rate declined, and the unemployment rate slightly increased.

In February 2025, the labor participation rate recorded at 62.4%, lower than the previous value of 62.6%, with a decline in the labor participation rate among the middle-aged and elderly population. From the perspective of unemployed individuals, the number of unemployed increased by 203,000 in February (the previous value was a decrease of 37,000), driving the U3 unemployment rate (= number of unemployed / labor force) to rise by 0.1 percentage points from the previous value, recording at 4.1%. In addition, the U6 unemployment rate (=(total number of unemployed + number of part-time workers due to economic reasons) / labor force) recorded at 8.0%, significantly higher than the previous value of 7.5%, indicating a clear weakening in the part-time market From the perspective of interest rate cuts, the rise in the unemployment rate in February, lower-than-expected new employment, and the phase of controllable inflation risks suggest that there is still a possibility of unexpected interest rate cuts in 2025.

Looking ahead, the recent sustained high interest rate environment, combined with the fiscal tightening effect brought by government efficiency departments before the implementation of tax reduction policies, will help continue to suppress inflation. The potential end of the Russia-Ukraine conflict in the future may also help drive down oil prices, making unexpected interest rate cuts by the Federal Reserve possible in 2025.

The CME Fedwatch tool shows that after the release of February's non-farm payroll data, the market expects three interest rate cuts throughout 2025, with the first cut expected in June at a probability of 52.6%, up from 47.5% the previous day; the probability of a cut in July is 41.4%, up from 40.0% the previous day; and the probability of a cut in October is 34.0%, up from 33.0% the previous day.

Risk Warning:

Unexpected downturn in the U.S. economy; unexpected developments in the geopolitical situation