It’s not all bad news behind the highest U.S. jobless rate in two years

The U.S. employment rate climbed to a two-year high in February. It’s a setback for those who lost their jobs, but it hardly signaled doom and gloom in the labor market.

To be considered unemployed by the Bureau of Labor Statistics, a person has to be actively trying to find work – otherwise they’re not part of the labor force at all. Last month, there was a big jump in people coming off the sideline to join the workforce – both for the first time and those trying again – helping boost the jobless rate to 3.9%, the highest since January 2022.

Combined with still-healthy job creation and moderating wage gains, the figures illustrate the type of softening in the job market that the Federal Reserve wants to see. More people looking for work should help alleviate labor shortages and therefore inflation, even though it’s taking a bit longer for them to become employed.

The jobs report is composed of two surveys – one of businesses, which produces the payrolls and wage data, plus a smaller poll of households that determines the unemployment figures. While the headline payrolls figure rose by 275,000 in data published Friday, the household survey showed a third-straight drop in employment, which was almost entirely concentrated among younger Americans.

“The rise in unemployment appears to have been driven by movements on the periphery,” and job losses remain low, according to Nick Bunker, economic research director for North America at Indeed Hiring Lab. “The rate at which currently unemployed workers are finding new work does appear to be slowing, but remains generally robust.”

There were some warning signs in the report. The number of people who permanently lost their jobs – a category that includes those who were laid off or completed a temporary job – rose to the highest level since November 2021. And the amount who left their job was the fewest in three years.

That echoes other data indicating that workers are feeling less confident in their ability to find a new position. Separate BLS data earlier this week showed 3.4 million people voluntarily quit in January, also the fewest since 2021. And small businesses are dialing back hiring plans.

While layoffs and unemployment claims have remained historically low, more companies like Exxon Mobil Corp. and Rivian Automotive Inc. have recently announced plans to let workers go.

Broken down by demographics, last month’s rise in unemployment was led by white and Hispanic women as well as Black men, though that mostly reflected higher participation among those groups. That was also true for veterans and people with less than a high school diploma.