The February employment reports from both the Bureau of Labor Statistics (BLS) and ADP present a paradox: private-sector job creation, as measured by ADP, slowed dramatically, yet the official unemployment rate rose by only 0.1 percentage point to 4.1%. Reconciling these two data sources provides a deeper look at the state of the labor market and where it may be heading.
Diverging Job Growth Numbers
The ADP National Employment Report recorded a sharp slowdown, with only 77,000 private-sector jobs added in February—less than half of January’s revised 186,000. The weakest industries were trade, transportation, education, and information services, all of which lost jobs. Meanwhile, the BLS establishment survey showed 151,000 jobs added, suggesting that overall employment growth is still positive, but slowing compared to previous months.
So why the discrepancy? The key lies in methodology:
ADP uses payroll data, which captures workers currently receiving wages.
BLS’s establishment survey counts anyone on payroll during the reference period, including those who may be laid off soon after.
BLS’s household survey determines unemployment based on whether individuals are actively looking for work, not simply whether they are employed.
This means that ADP may be capturing the slowdown in hiring more immediately, while BLS is slower to reflect these changes in the unemployment rate.
Labor Force Participation and the Unemployment Rate
Despite the slowdown in hiring, the unemployment rate edged up only slightly to 4.1%, remaining within a tight range since mid-2024. However, this stability masks underlying weaknesses:
The labor force participation rate declined to 62.4% from 62.6% in January, meaning fewer people were actively looking for work.
The employment-population ratio also dropped to 59.9% from 60.1%.
The number of people not in the labor force but wanting a job surged by 414,000 to 5.9 million, suggesting more discouraged workers exiting the job market.
This explains why, despite a slowdown in hiring, the unemployment rate did not rise more sharply—many displaced workers are simply not being counted as unemployed because they stopped actively searching for jobs.
Job Gains and Losses by Industry
Job growth in February was highly uneven across industries, revealing clear strengths and weaknesses:
Industries That Added Jobs:
Health Care: +52,000 jobs, driven by ambulatory services, hospitals, and nursing facilities.
Financial Activities: +21,000 jobs, with strong hiring in real estate and insurance.
Transportation & Warehousing: +18,000 jobs, led by couriers and air transport.
Social Assistance: +11,000 jobs, though below the 12-month average.
Industries That Lost Jobs:
Education & Health Services: -28,000 jobs, despite healthcare gains.
Trade & Transportation: -33,000 jobs, with steep losses in retail and wholesale trade.
Information Services: -14,000 jobs, reflecting layoffs in media and tech.
Government Employment: -10,000 jobs, led by cuts in the federal workforce.
This divergence suggests a sectoral shift, where higher-skilled service jobs (healthcare, finance) are faring well, while consumer-dependent and cyclical industries (retail, transportation, and education) are seeing contraction.
Earnings and Work Hours: Signs of Wage Pressure
One of the most important indicators of labor market health is wage growth. In February:
Average hourly earnings rose by 0.3% to $35.93, marking a 4.0% year-over-year increase.
Earnings for production and nonsupervisory workers rose by 0.3% to $30.89.
The average workweek remained at 34.1 hours, suggesting no immediate cuts in hours—but also no expansion.
However, ADP’s pay insights revealed a slowing pace of wage gains for job switchers, declining from 6.8% in January to 6.7% in February, indicating that workers may be losing leverage in wage negotiations.
The Role of Part-Time and Marginally Attached Workers
Another warning sign in the labor market is the sharp increase in part-time employment and discouraged workers:
The number of part-time workers for economic reasons jumped by 460,000 to 4.9 million, indicating that many would prefer full-time jobs but can’t find them.
The number of discouraged workers fell by 128,000 to 464,000, but the number of people marginally attached to the labor force rose to 1.7 million.
This suggests that while some people are leaving the labor force entirely, others are accepting less stable or lower-paying work due to lack of better options.
Balancing ADP and BLS: What’s the Real Labor Market Picture?
Bridging the differences between ADP’s weaker report and BLS’s relatively steady data, we arrive at a more nuanced conclusion:
Hiring has slowed, but layoffs have not yet surged.
ADP’s data indicates businesses are pulling back on hiring, but not yet engaging in large-scale layoffs.
The BLS report’s positive job growth could reflect employers being reluctant to fire workers due to recent labor shortages.
Labor force exits are keeping the unemployment rate artificially low.
Many people left the workforce rather than officially becoming unemployed, preventing a sharper rise in the jobless rate.
A lower labor force participation rate masks the true extent of labor market weakness.
Wage growth is moderating, a sign that labor demand is softening.
While wages are still rising, job switchers are seeing weaker pay gains, suggesting employers are no longer desperate to fill positions.
The labor market is at an inflection point.
If hiring continues to slow and more workers exit the labor force, unemployment could rise more significantly in the coming months.
If economic conditions improve, some sidelined workers may re-enter the workforce, boosting participation.
What to Watch Moving Forward
The labor market is approaching a critical turning point. In the coming months, the key indicators to monitor include:
Labor force participation: Will more workers re-enter the workforce, or will participation continue to fall?
Wage growth trends: Will employers keep offering raises, or will pay gains flatten?
Hiring and layoffs: If ADP’s hiring slowdown continues, will it translate into higher unemployment?
Sectoral employment shifts: Can healthcare and finance continue to add jobs while retail and trade decline?
Conclusion: A Fragile Expansion
The February employment reports tell a story of a labor market that is still growing—but with clear cracks forming. The BLS headline numbers paint a picture of stability, but ADP’s data and deeper labor market trends suggest softening demand. Wage growth is moderating, hiring is slowing, and more workers are becoming part-time or leaving the workforce altogether. While we are not yet seeing a full-blown downturn, the risks to continued labor market strength are growing.
The next few months will be crucial in determining whether this is simply a period of cooling, or the start of a more serious labor market correction.
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