The Strongest Month for Hiring Is Sending a Weak Signal

Editor’s Note: The U.S. and Israel carried out coordinated strikes in Iran over the weekend. The headlines are already spiraling into predictions of worst‑case outcomes. The truth is no one can say with certainty how events will unfold from here. But we can draw on nearly seven decades of market history, stretching back to the Suez Crisis in 1956. What we do know is that geopolitical shocks in the Middle East tend to follow a familiar pattern: an initial knee‑jerk selloff, followed by stabilization, and ultimately a recovery. Typically, the S&P 500 regained any conflict‑related losses within roughly 45 days.

As investors, we can only control our process, not the news cycle. Moments like these are often the wrong time to react emotionally, and the right time to stay grounded in data, discipline, and perspective.

The Strongest Month for Hiring Is Sending a Weak Signal

• Services and manufacturing surveys show hiring improved in February.

• However, the increase looks marginal at best.

• A below average month will keep pressure on the Fed to support growth.

This week’s payroll number could confirm what the Fed surveys are already hinting: hiring keeps losing altitude…

This week delivers a meaningful read on the direction of U.S. growth. On Friday, the U.S. Bureau of Labor Statistics (“BLS”) publishes its February payroll report. Wall Street’s penciling in a gain of just 58,000 jobs. If the number lands there, it’ll fall well short of the typical February increase of 295,000 since 2015. It would also mark another year where the labor market stumbles out of the gate…

Historically, February is the strongest month of the year to secure a job, with June close behind. But recent Fed business surveys suggest hiring merely held flat last month, following January’s modest 130,000‑job gain. If the national data echoes that pattern, it points to slow but steady growth. That backdrop reinforces the case for more rate cuts later this year and supports a continued grind higher in the S&P 500.

But don’t take my word for it, let’s look at what the data’s telling us…

Each month, several regional Fed banks survey manufacturing and services firms to gauge business conditions. I focus on the employment and inflation components from the Dallas, Kansas City, New York, and Philadelphia districts. Together, they represent roughly 32% of U.S. GDP. Their surveys offer an early read on national trends, especially since they’re released ahead of market‑moving reports like the BLS payrolls.

Today, I’m zeroing in on employment. Let’s break down the individual components before zooming out to the broader picture.

Starting with manufacturing…

The chart above tracks the sector’s hiring trend over the past seven years. After the pandemic collapse, factory hiring rebounded sharply, but momentum has faded over time. Manufacturing employment held firm through most of last year, saw a brief pickup in July and August, then softened into year‑end. After a pullback in January, the sector’s hiring pace appears to have improved last month.

The more important services sector told a different story…

Hiring slipped again, with the gauge falling back into negative territory. February marked the fifth negative reading in the past six months. As has been the case recently, Philadelphia was the only district showing consistent strength, while New York posted its weakest outcome since COVID and stayed the biggest drag. Conditions also stayed soft in the Dallas and Kansas City districts.

To get a cleaner national picture, I combined the manufacturing and services data into a single gauge. It’s weighted 80% services and 20% manufacturing, consistent with the U.S. employment mix. I also weighted each district by its GDP share…

As you can see, after a brief mid‑year bounce, the overall hiring picture is still soft. In February, my combined index slipped back into contraction after barely turning positive last month.

Now let’s compare the combined Fed employment gauge with nonfarm payrolls for historical context…

The chart above uses a three‑month rolling average to smooth volatility and highlight the trend. The combined Fed survey tends to lead national hiring. While the index moves through rolling peaks and valleys, the broader trend has been drifting lower. And although it improved to -0.5 from -1.5 last month, that’s hardly a meaningful rebound.

At the end of the day, manufacturing and services employment remains weak. If the BLS confirms this pattern on Friday, it’ll show hiring running well below historical norms.

And if that happens, Wall Street will likely grow more confident in its expectation of at least two more rate cuts by the end of 2026. That would align with recent comments from policymakers who want to give last year’s adjustments more time to filter through the economy.

Ultimately, even lower rates by the end of 2027 would push borrowing costs down, free up cash for households and businesses, and support economic growth. That would help fuel a continued long‑term rally in the S&P 500.

Five Stories Moving the Market:

President Donald Trump said the U.S. military will continue bombing Iran until his objectives are achieved, while acknowledging that “there will likely be more” American casualties; Trump confirmed the death of Iran’s supreme leader, Ayatollah Ali Khamenei and said the U.S. and Israel had struck hundreds of targets in Iran, including Revolutionary Guard facilities and air defenses – Bloomberg. (Why you should care – the White House appears to be seeking regime change as it’s calling on Iran’s military and police to surrender)

Several tanker owners, oil majors, and trading houses have suspended crude oil, fuel and liquefied natural gas shipments via the Strait of Hormuz after the U.S. and Israel attacked Iran and Tehran said it had closed navigation – Reuters. (Why you should care – until additional supply resources are secured, oil and gasoline prices are likely to remain elevated)

Nvidia plans to unveil a new processor specially tailored to help OpenAI and other customers build faster, more efficient tools, a major shake-up to its business that is poised to reset the AI race; the company is designing a new system for “inference” computing, a form of processing that allows AI models to respond to queries – WSJ. (Why you should care - a cheaper, lower‑bandwidth inference chip could slow the growth curve for High Bandwidth Memory because it shifts AI workloads away from HBM‑intensive architectures and toward designs that rely on less expensive memory)

Chinese leaders will launch a pivotal five-year plan this week that’ll help shape global commodities markets through the end of the decade; China’s annual GDP goal, plans to stimulate the economy, and any steps to support favored sectors, from clean energy to artificial intelligence, should give relatively straightforward clues on where consumption is likely to expand – Bloomberg. (Why you should care – recent moves by the U.S. to topple the regimes in Venezuela and Iran are likely to make Beijing increasingly dependent on resources from Africa and Russia)

A well-honed tariff-reduction playbook is giving businesses confidence that they can deal with President Trump’s latest tariffs; American importers are able to ease tariff costs by declaring values on a “first sale” basis – WSJ. (Why you should care – companies dig through their supply chains to find lower prices for paying tariff costs)

Economic Calendar:

Earnings – ADT, AES, BRK/A, CRDO, MDB, RIOT, SATS, SEE

Japan – Au Jibun Bank Japan Manufacturing PMI (Final) for February

Eurozone – German Retail Sales for January (2 a.m.)

Eurozone – HCOB Eurozone Manufacturing PMI (Final) for February (4 a.m.)

U.K. – BoE Consumer Credit for January (4:30 a.m.)

U.K. – S&P Global U.K. Manufacturing PMI (Final) for February (4:30 a.m.)

U.K. – Net Lending to Individuals for January (4:30 a.m.)

ECB’s Lagarde (President) Speaks (9 a.m.)

ECB’s Nagel (Germany) Speaks (9:10 a.m.)

U.S. – S&P Global U.S. Manufacturing PMI (Final) for February (9:45 a.m.)

U.S. – ISM Manufacturing PMI for February (10 a.m.)

BOE’s Ramsden (Deputy Governor) Speaks (10:30 a.m.)

Treasury Auctions $89 Billion in 13-Week Bills (11:30 a.m.)

Treasury Auctions $77 Billion in 26-Week Bills (11:30 a.m.)

RBA’s Bullock (Governor) Speaks (4:10 p.m.)