Everbright Securities: How to view the significantly below-expected non-farm payroll data in February?

CITIC Finance APP has learned that Everbright Securities released a research report stating that on March 6, 2026, the U.S. Department of Labor announced the February 2026 non-farm payroll data: a decrease of 92,000 jobs, compared to an expected increase of 59,000; the previous figure was revised from 130,000 to 126,000. The February unemployment rate was 4.4%, slightly above the expected 4.3%, and unchanged from the previous 4.3%. Average hourly earnings increased by 3.8% year-over-year, slightly above the expected 3.7%, and the previous 3.7%.

From a rate cut perspective, the Federal Reserve currently faces a trade-off between “stagnation” and “inflation.” In the short term, rate cuts are uncertain, but if the employment market continues to worsen, it could become a “constraint variable” in the U.S.-Iran situation. After the non-farm payroll data was released, Fed officials expressed concerns about employment figures, but inflation expectations driven by rising oil prices will also limit future rate cut space. Under the constraints of the U.S. domestic economic situation, there is a possibility that Trump may choose a “quick resolution” to actively ease Middle East tensions, creating policy space for the Fed to restart rate cuts mid-year.

Everbright Securities’ main views are as follows:

How to view the significantly below-expected non-farm data in February? The reasons include temporary disruptions caused by strikes in the healthcare sector and weather factors. On one hand, employment in the healthcare sector was a major drag on the non-farm data, mainly due to strikes by Kaiser Permanente in California and Hawaii. On the other hand, winter storms swept across the U.S. Northeast at the end of February, leading to emergency declarations in states like New York and New Jersey, which may have affected employment in construction and offline services industries. It must be acknowledged that although the weakening of February’s non-farm data was influenced by disruptions, the worsening Middle East situation and rapid oil price increases pose a risk of further deterioration in future employment data.

From a rate cut perspective, the Federal Reserve faces a trade-off between “stagnation” and “inflation.” In the short term, rate cuts are uncertain, but if the employment market continues to worsen, it could become a “constraint variable” in the U.S.-Iran situation. After the data release, Fed officials expressed concerns about employment, but inflation expectations driven by rising oil prices will also limit future rate cut space. Under the constraints of the U.S. economy, there is a possibility that Trump may opt for a “quick resolution” to actively ease Middle East tensions, creating policy space for the Fed to restart rate cuts mid-year.

Non-farm employment fell more than expected, with weakness in manufacturing and service sectors

(1) Education and healthcare: February saw a decrease of 19,000 jobs in the healthcare sector, far below the previous increase of 116,000, mainly due to strikes, which was a major drag on the non-farm data. (2) Offline services and construction: Winter storms in late February swept across the U.S. Northeast, with construction employment down by 11,000, leisure and hospitality down by 27,000, and transportation and warehousing down by 11,000, all showing weakness.

Labor participation rate declined, unemployment rate rose

In February, the labor participation rate was 62.0%, down from 62.1%, indicating decreased employment willingness among middle-aged groups. The number of unemployed increased by 209,000, driving the U3 unemployment rate (unemployed persons divided by labor force) up to 4.4%. Structurally, the number of temporarily unemployed persons increased by 79,000 (after a decrease of 83,000 in the previous month), possibly reflecting reduced labor demand from companies. The number of permanently unemployed increased by 30,000 (after an increase of 38,000 previously), with little change overall.

From a rate cut perspective, the Federal Reserve faces a trade-off between “stagnation” and “inflation.” In the short term, rate cuts are uncertain, but if the employment market continues to worsen, it could become a “constraint variable” in the U.S.-Iran situation. After the data release, Fed officials expressed concerns about employment, but inflation expectations driven by rising oil prices will also limit future rate cut space. Under the constraints of the U.S. economy, there is a possibility that Trump may choose a “quick resolution” to actively ease Middle East tensions, creating policy space for the Fed to restart rate cuts mid-year.

CME FedWatch tool shows that after the non-farm payroll data release, the market expects one rate cut in 2026, in September, with a 42.3% probability. The probability of rate pause in March 2026 is 95.5%.

Risk warning: U.S. economic slowdown exceeding expectations; escalation of international trade frictions; geopolitical developments exceeding expectations.