COLLECTION - STOCK.ADOBE.COM PHOTOThe U.S. economy added a moderate 151,000 jobs in February, the jobless rate edged up slightly, to 4.1%, and an economist who follows the recreational marine industry said that the Federal Reserve is “signaling a wait-and-see approach on interest rates,” leaving them on hold for the near term.
Ian Wyatt, director of economics at recreational marine lender Huntington Commercial Bank, said a couple of key trends are driving the central bank’s approach to rates and the economy.
“First, current inflation is above target, and job growth is decent,” Wyatt said. “The Fed has already cut rates 100 basis points, or 1%, and it wants to see more progress toward its inflation target before cutting. It also feels no urgency to cut, given the labor market and inflation trends.
“Second, the Fed sees a couple of risks to its outlook point rate policy in the opposite direction,” he added. “It sees upside risk to inflation — meaning inflation could be above forecasts — which would push the Fed to hold rates steady or even raise them. We see any hike as very unlikely but steady as a reasonable scenario. Meanwhile, it sees downside risks to job growth, which would push it to cut rates. Either way, holding steady until summer at the earliest seems likely, barring big surprises in the data.”
The Fed raised its benchmark federal funds interest rate 11 times in 2022 and 2023, but the economy stayed strong, helped in part by a heavy flow of immigrants who offset what otherwise could have been labor shortages, particularly in low-wage jobs.
The Fed’s policymaking Federal Open Market Committee will meet March 18 and 19, but most other economists also expect no change in rates at that meeting.
Surveys of economists predicted that the U.S. economy would add 160,000 jobs in February. The Labor Department’s monthly survey of employers finished up too soon to allow most of the government layoffs triggered by Elon Musk and his extra-governmental Department of Government Efficiency to show up.
“While there was a small (10,000) drop in federal employment [during the month], early February was too early to see any serious impact of changes in federal policies,” Wyatt said. “We will have a better sense of the impact of new policies in the [March] jobs report.”
Revisions to prior months’ job numbers pretty much canceled each other out. December’s job total was revised upward by 16,000, to 323,000, and January’s figure became 18,000 less than originally reported, now 125,000.
Health care — ever the bellwether — led all categories again in February with 52,000 new jobs; the financial activities sector was next with 21,000 jobs; transportation and warehousing employment added 18,000; and social assistance was up 11,000.
The government’s report also said worker pay rose by 10 cents, or 0.3%, to $35.93 an hour. During the past 12 months worker earnings have increased by 4%, remaining well above the current rate of inflation.
That level of pay gains has supported growth in consumer spending for quite a few months, although the Commerce Department said such purchases declined in January, falling 0.2% for its first monthly drop in nearly two years. Consumer activity can represent as much as 70% of the economy.
Wyatt said part of the reason the Fed is concerned about downside risks to the labor market is that there are some signs of underlying softness.
“Average weekly hours came in at 34.1 — this is lower than normal in a healthy labor market,” he said. “Another area of softness is youth unemployment. The unemployment rate for those age 20 to 24 was 6% back in January 2024 and rose to 8.3% [this February]. This fits other sources reporting new college grads are having a tough time finding a job.
“Job turnover is also lower than is normal in a healthy labor market,” Wyatt added. “Given these signs of softness, the Fed is nervous about the job market, but inflation remaining above target, and is planning on holding rates steady until a clearer signal emerges in the data.”
The government said the labor force participation rate — the measure of the population that is in the workforce — fell by 0.2%, to 62.4%, in February. Although the change appears small, the new rate is the lowest it has been in two years.
For American companies, the effect of President Donald Trump’s planned tariffs is also a concern. The U.S. marine industry exports a significant number of boats to Canada, and the Canadian government has said it is imposing 25% tariffs on $280 billion worth of goods in response to the tariffs that Trump announced.
Boats are on one of two lists of goods on which Canada intends to impose tariffs, according to a statement from Dominic Leblanc, Canada’s minister of finance and intergovernmental affairs, and Melanie Joly, minister of foreign affairs.
Trump last Thursday announced a one-month delay on new tariffs on imports from Canada and Mexico that are covered under the USMCA trade agreement he negotiated during his first term. The tariffs are now scheduled to take effect April 2.
Wyatt said his bank “saw a surge in imports in January data as companies sought to front-run the tariffs by building up domestic inventories, which is a logical short-run response. Some companies are seeking to localize their production as a long-run hedge against future tariffs and trade disputes.”
The National Marine Manufacturers Association said in a statement that it “continues to push for long-term solutions that support fair trade without imposing undue burdens on American manufacturers.”
NMMA noted that Canada is the largest consumer of U.S.-built boats, accounting for about 51% of American boat exports.
“President Trump is right to focus on strengthening American manufacturing, and we appreciate the administration’s commitment to fair trade,” NMMA president and CEO Frank Hugelmeyer said in the statement. “However, it’s essential that tariff and trade policies are structured in a way that supports U.S. industries rather than creating unintended challenges. The recreational boating industry is a prime example of American success, but global competitiveness depends on policies that enhance, not hinder, growth.”
Ahead of the recent jobs report, the ADP Research Institute said in its National Employment Report for February that private-sector employment rose by just 77,000, down from a revised 186,000 in January and the slowest pace since July of last year.
Annual pay was up by 4.7% for people who stayed in their current jobs. Among job-changers, the gain was 6.7%.
The institute said hiring at medium-sized businesses led February’s growth, with 46,000 newly employed. The overall gain in employment was greatest in the Midwest (56,000) and Northeast (55,000). The South and West had declines.
“Policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring last month,” Nela Richardson, the institute’s chief economist, stated in a press release. “Our data, combined with other recent indicators, suggests a hiring hesitancy among employers as they assess the economic climate ahead.”
