American employers unexpectedly trimmed headcount in February, a development that left economists and investors reassessing how quickly the labor market can recover as households and businesses remain wary about costs tied to the war with Iran. The Labor Department reported that jobs fell by 92,000 last month and that the unemployment rate edged up to 4.4%—a turn that ran counter to expectations for job growth.
The Labor Department said hiring deteriorated from January, when companies, nonprofits and government agencies added 126,000 jobs. In addition, the agency reported revisions that cut 69,000 jobs from the prior two months’ payroll totals, further weakening the overall picture of labor demand heading into spring.
The unexpectedly weak employment data arrived amid economic uncertainty linked to the war with Iran, which has pushed oil prices higher and saddled businesses and consumers with unforeseen costs. Economists said that combination—slower hiring alongside inflationary pressure—creates a challenging environment for the Federal Reserve as it weighs whether to cut interest rates to support employment or hold back to keep inflation in check.
Heather Long, chief economist at Navy Federal Credit Union, said the job market was “struggling in the face of so many headwinds.” She added that “Companies are going to be even more reluctant to hire this spring until the war ends and they can see consumers still spending,” characterizing the moment as “a tense time for the U.S. economy.”
Olu Sonola, head of U.S. economics at Fitch Ratings, said “Just when it looked like the labor market was stabilizing, this report delivers a knock-down blow to that view.” He said “It’s bad news whichever way you look at it,” pointing to the broad implications of a weaker jobs report for near-term economic expectations.
The Labor Department said job losses were widespread across industries. Construction companies cut 11,000 jobs, while factories cut 12,000 jobs and have lost employment for 14 of the last 15 months. Restaurants and bars lost nearly 30,000 jobs, administrative and support services firms cut nearly 19,000, and courier and messenger services almost 17,000.
The Labor Department also reported large declines in health care, with health care firms shedding 28,000 jobs after a four-week strike involving more than 30,000 nurses and other front-line workers at Kaiser Permanente in California and Hawaii. Financial firms added 10,000 jobs, although the report noted that job cuts have continued to hit the sector this year.
Alongside the employment changes, the report showed wages moving higher, with average hourly wages rising 0.4% from January and 3.8% from a year earlier. The Labor Department’s snapshot of payroll cuts and rising unemployment appeared poised to complicate the central bank’s policy decision as it confronts the simultaneous pressures of a softening labor market and inflation concerns tied to war-related costs.
Economists said the setback also fits into a broader narrative of uncertainty created by President Donald Trump’s tariff policies in 2025. They noted that the impact of those aggressive trade policies may lessen in 2026, but that the war with Iran has added new cost pressures for business plans that had already adjusted to tariffs.
Boston College economist Brian Bethune said Trump’s 2025 tariffs were a shock to companies’ business plans. He said that now, “just as they’ve adjusted to them,” “Guess what! All of a sudden their 2026 business plans are upended by an increase in fuel costs” caused by the war with Iran.
Jay Foreman, chief executive of the toy company Basic Fun, said he expects to get relief from tariffs after the Supreme Court struck down the biggest ones last month and potentially opened a path for importers to seek refunds for levies they paid. Foreman said Basic Fun expects “a record year,” but he estimated that under new tariffs sought by Trump, the company’s tariff bill will more than double this year to $15 million—partly because the firm would pay for a full year of Trump tariffs in 2026, whereas tariffs last year were rolled out in spring or later.