The U.S. labor market delivered an unpleasant surprise: weakening hiring and more expensive energy are bringing back fears of stagflation
The U.S. economy entered March with an unpleasant signal from one of the most important areas of every major economy, the labor market. According to the latest report from the U.S. Bureau of Labor Statistics, total nonfarm employment in February decreased by 92,000 jobs, while the unemployment rate remained almost unchanged, but still rose to 4.4 percent. The figure itself does not automatically mean entry into a recession, but its weight becomes greater when placed in a broader context: hiring weakened at a time when energy prices are once again under pressure, and companies have already been warning for months about higher input costs and weaker business visibility.
Markets therefore did not react only to one bad monthly figure, but to a combination of signals that seems particularly unpleasant to investors and economists. If the economy is slowing while energy and other costs are pushing prices upward again, the central bank enters a much more difficult position. That is precisely why the stagflation scenario, that is, a situation in which growth weakens, the labor market softens, and inflationary pressures do not disappear quickly enough for monetary policy to ease calmly, has once again begun to be mentioned more frequently in U.S. financial circles.
What exactly the official data show
Official data published on March 6, 2026 show that the U.S. labor market lost momentum in February more strongly than expected. The Bureau of Labor Statistics states that the decline in total employment is primarily linked to weaker movements in healthcare, with the impact of strike activity standing out in particular, but also to the continued decline in employment in the information sector and in federal state institutions. That means the deterioration cannot be reduced to just one isolated branch, although healthcare itself, which had been among the drivers of employment growth in previous months, has now made a negative contribution.
Even more important is the fact that the February figure came after revisions of earlier months. The number for December was revised downward, from the previously reported growth of 48,000 jobs to a decline of 17,000, while January growth was corrected from 130,000 to 126,000. When this is combined with the fact that average hourly earnings are still 3.8 percent higher year on year, the picture that emerges is of a labor market that is weakening in terms of hiring, but is not showing complete easing in terms of wages. That combination is precisely what particularly interests U.S. monetary authorities because it indicates that labor demand is no longer as strong as before, but cost pressures have not disappeared either.
The number of unemployed according to the official household survey amounts to 7.6 million people. The labor force participation rate remained at 62.0 percent, and the share of the long-term unemployed remained high, with 1.9 million people out of work for 27 weeks or longer. This is not a level that in itself signals a dramatic breakdown of the labor market, but it points to a gradual accumulation of weakness. It is especially important that the number of long-term unemployed increased compared with last year, suggesting that some workers are finding it increasingly difficult to find a new job and that the labor market is becoming less fluid than during the period of strong recovery after the pandemic.
Why energy in this story is almost as important as hiring
Weaker employment data would probably by themselves have strengthened expectations that the U.S. central bank would have more room within a few months to cut interest rates. But at the same time, a new wave of instability has appeared in energy markets. In its latest short-term forecast, the U.S. Energy Information Administration recalls that as early as January the price of Brent was rising under the influence of supply disruptions and escalating tensions with Iran. In the meantime, market nervousness has increased further, and reports from leading international media dated March 6 show that oil has once again risen sharply in the market, with Brent at one point exceeding 90 dollars per barrel.
This is an important signal for the U.S. economy for several reasons. A higher oil price almost never stops only at energy companies. It spills over into the costs of transportation, logistics, production, heating, and ultimately into household budgets. When fuel becomes more expensive, companies have a stronger incentive to pass higher costs on to end customers, while consumers direct part of their disposable income to necessary expenses and less to other goods and services. In such an environment, consumption can weaken precisely when it should be supporting economic growth.
An additional problem is that the rise in energy prices is coming at a time when the U.S. Federal Reserve is already facing a mixed picture of the economy. The latest Beige Book, a review of economic conditions by districts of the U.S. central bank, published on March 4, shows that economic activity in part of the country was growing only at a slight to modest pace, while the number of districts reporting stagnation or a decline in activity increased. The same document states that hiring is generally stable, but also that the costs of energy, utilities, insurance, and raw materials are under pressure, with numerous notes about rising tariff-related costs. In other words, the picture of slowdown did not come out of nowhere; it could already be sensed for several weeks in surveys and statements from business contacts.
What lies behind the decline in employment
The February job loss should be read carefully because part of the weakness stems from one-off or temporary factors. The official report explicitly states that healthcare lost 28,000 jobs, with physicians’ offices losing 37,000 jobs, primarily due to strike activity. That means part of the negative figure does not necessarily have to indicate a permanent collapse in labor demand in that sector. Nevertheless, the rest of the report is not particularly comforting either. The information sector lost 11,000 jobs, and the federal sector another 10,000, with employment in the federal administration down by 330,000 jobs from its peak in October 2024.
A decline was also recorded in transportation and warehousing, where the sector almost stagnated on a monthly basis, but is still noticeably lower than at the peak in February 2025. Such data indicate that weakness is not concentrated only where there are short-term disruptions such as strikes, but is also visible in parts of the economy that often react first to weaker demand, cost rationalization, and changes in the behavior of consumers and companies. When this is added to the fact that numerous contacts in the Beige Book mentioned uncertainty, higher price sensitivity among customers, and pressure from input costs, it becomes clearer why the February report is perceived as more than a passing statistical incident.
At the same time, this is not a completely monochrome picture. Social assistance continued to grow, and in a number of major industries employment did not change significantly. This is an important nuance because it shows that the U.S. labor market is not in free fall. However, this gray zone is precisely the reason why the debate is complex: the economy does not look strong enough to absorb new shocks without difficulty, but neither does it look weak enough for the central bank to ignore inflation risks coming from energy, tariffs, and other costs.
Why stagflation is being talked about again
The term stagflation is often used lightly in public, but this time the reasons for concern do have a concrete basis. The first element is the slowdown in the labor market, which is now visible both in hiring and in revisions to older data. The second element is the increase in costs that can slow the decline in inflation or even push it upward again. The third element is the uncertainty of monetary policy: if inflation remains stubborn because of more expensive energy and other input costs, the Federal Reserve will not have a simple argument for quickly easing policy, even if hiring continues to weaken.
Financial markets are already pricing in precisely that dilemma. After the publication of the employment report and the simultaneous rise in oil prices, U.S. stocks fell noticeably, and the week on Wall Street ended with pronounced investor unease. The market message was clear: bad news is no longer automatically good news for interest rates. In a period when inflation was convincingly on a downward path, a weaker macroeconomic figure could be interpreted as an argument for looser monetary policy. Now, however, the rise in energy prices is disrupting that mechanism because it increases the risk that any premature easing could reignite inflation expectations.
For ordinary households, that problem translates into very concrete questions: will fuel and utilities become more expensive, will interest rates remain elevated for longer, and will employers become more cautious in new hiring. For companies, the equation is equally unpleasant. On the one hand, weaker demand and greater customer sensitivity limit the room for raising prices. On the other hand, more expensive energy and other input costs reduce margins. In such a period, companies often postpone investment and new hiring, which further intensifies the slowdown.
What comes next for the Federal Reserve and the U.S. economy
The next important test for the U.S. economic picture will be inflation data and then the Federal Reserve meeting scheduled for March 17 and 18. The Fed formally has a dual mandate: price stability and maximum employment. Under more normal circumstances, weaker labor market data would shift the balance toward greater concern for employment. But the current rise in energy prices and broader cost pressures means that the central bank will probably remain cautious, especially if the next inflation data do not show convincing calming.
The Beige Book suggests, meanwhile, that the economy is still not in open contraction at the national level. Seven out of twelve districts reported slight to moderate growth in activity, but five districts reported flat or declining activity, which is worse than in the previous period. Such a distribution points to an economy that is not breaking overnight, but is increasingly losing the breadth of growth. It is precisely in such phases that the labor market often sends the first warning, while the full effect of more expensive financing and higher costs only gradually spills over into consumption and investment.
For now, it is still not clear whether the February negative figure will remain an isolated case under the influence of strikes and one-off disruptions or the beginning of a more unfavorable trend. But the available information gives enough reason not to dismiss this report as statistical noise. Revisions to previous months, weakening in several sectors, rising long-term unemployment, the more cautious tone of the Federal Reserve, and new pressure from energy markets together form a combination that Washington, Wall Street, and U.S. consumers will follow in the coming weeks with much more attention than usual. If it turns out that the labor market really has begun to falter more seriously precisely at a moment when energy is becoming more expensive again, then fear of slowdown with stubborn inflation will grow from market nervousness into the central economic theme of the spring of 2026.
Sources:- U.S. Bureau of Labor Statistics – official report “The Employment Situation” for February 2026, with data on the decline in employment, unemployment, wages, and sectoral changes (link)
- U.S. Bureau of Labor Statistics – weekly release schedule confirming the publication date and pointing to the February employment report (link)
- Federal Reserve – Beige Book page with the March 2026 edition and an overview of regional economic developments (link)
- Federal Reserve Bank of Minneapolis – national summary of the Beige Book of March 4, 2026, with an assessment of activity, employment, and price pressures (link)
- U.S. Energy Information Administration – short-term energy outlook with an overview of Brent prices, natural gas, and energy risks in 2026 (link)
- Associated Press – report on the market reaction and the jump in the price of oil to its highest level since 2023 after the weak employment report and geopolitical tensions (link)
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