Merchants Macro: The employment structure of the US labor market is fragile, and overseas stagflation expectations are rising.

Event: On March 6, 2026, the U.S. Bureau of Labor Statistics (BLS) released that in February 2026, non-farm payroll employment in the U.S. decreased by 92,000, compared to an increase of 130,000 in the previous month. The unemployment rate recorded 4.4%, up from 4.3% in the previous month. Key Points: The February U.S. non-farm data slowed down more than expected, primarily due to a combination of factors such as strike activities, extreme weather, and the transformation of the AI technology industry. Additionally, the BLS has started to incorporate current sample information into the birth-and-death model for businesses, leading to increased volatility in the data. In recent years, non-farm employment data has been mainly contributed by non-cyclical education and healthcare projects, but the current data exposes the structural fragility of the U.S. labor market under short-term impacts. The unemployment rate only saw a slight rebound, partly due to a decrease in labor force participation rate. After the data was released, overseas markets have raised expectations of economic fundamentals stagnating, leading to adjustments in the three major U.S. stock indices, a short-term decline followed by a rebound in the 10-year U.S. Treasury yield to around 4.16%, and the U.S. dollar index fluctuating around 99.1. Specifically: 1) In February, non-farm payroll employment decreased by 92,000, much lower than the market's expected increase of 55,000. The data for the previous month was revised downward by a total of 69,000, with January's non-farm additions revised slightly down from the initial value of 130,000 to 126,000, and December's non-farm additions revised down from 48,000 to -17,000. 2) By industry, education and healthcare services have been the main support for non-farm additions in recent years, but healthcare projects turned negative in this period due to strike activities, leading to a cooler-than-expected non-farm data, reflecting the structural fragility of the labor market. In February, education and healthcare services saw a decrease of 34,000 (compared to 129,000 in the previous period), with healthcare and social assistance seeing a decrease of 34,000 (compared to 129,000 in the previous period), mainly due to a large-scale strike at Kaiser Permanente. Additionally, the construction, manufacturing, and transportation industries all showed weakness due to extreme weather, with construction seeing a decrease of 11,000 (compared to 48,000 in the previous period), manufacturing seeing a decrease of 12,000 (compared to 5,000 in the previous period), and transportation and warehousing seeing a decrease of 11,000 (compared to a decrease of 12,000 in the previous period), mainly attributed to layoffs in the express delivery industry. The leisure and hospitality industry saw a decrease of 27,000 (compared to a decrease of 12,000 in the previous period). Due to the impact of AI technology, the information industry continued to see layoffs, with a decrease of 11,000 (compared to a decrease of 19,000 in the previous period). Business services saw a decrease of 5,000 (compared to an increase of 18,000 in the previous period), and temporary support services saw a decrease of 7,000 (compared to an increase of 3,000 in the previous period). Government departments continued to see layoffs, with a decrease of 6,000 (compared to a decrease of 20,000 in the previous period), mainly concentrated in a reduction of 10,000 in federal government employment (compared to a decrease of 29,000 in the previous period). 3) Household survey data indicates dual weakness in labor market supply and demand. In February, the unemployment rate rose to 4.4% (up from 4.3% in the previous period), while the labor force participation rate fell significantly to 62.0% (down from 62.5% in the previous period), with the prime working-age labor force participation rate (25-54 years old) dropping to 83.9% (down from 84.1% in the previous period). Looking at ethnic groups, white unemployment rate stood at 3.7% (unchanged from the previous period), Asian unemployment rate significantly increased to 4.8% (up from 3.1% in the previous period), and black unemployment rate rose to 7.7% (up from 7.2% in the previous period). 4) Hourly wage growth remained strong, with a month-on-month increase of 0.4% in February (unchanged from the previous period) and a year-on-year increase of 3.84% (up from 3.71% in the previous period). The average weekly hours worked in the private sector remained at 34.3 hours (unchanged from the previous period), and labor demand remained stable. After the data was released, overseas rate cut expectations returned to the view of a single rate cut in July. The U.S. 2-year Treasury yield briefly dropped by about 7 basis points but rebounded slightly to around 3.56% under stagnation expectations, while the 10-year U.S. Treasury yield hovered around 4.17%. Safe-haven sentiment and stagnation expectations led to significant fluctuations in the U.S. dollar index around 99.17. The three major U.S. stock indices saw clear adjustments, with the Nasdaq down 1.4% to around 22,420 points and the Dow down 1.6% to around 47,170 points. Risk Warning: Overseas policies. This article is translated from the official WeChat account of "CMB Macro Insights" by GMTEight editor: Chen Yufeng.