Lower-Than-Expected Employment Report Weighed On Stocks Last Week, But Productivity Is On The Rise Stocks closed lower on Friday and for the week, following Friday's lower-than-expected jobs report. Friday morning's Employment Situation Report by the Bureau of Labor Statistics (BLS) showed nonfarm payrolls down -92,000 in February (-86,000 in the private sector and -6,000 in the public sector), vs. the consensus estimate for 60,000 (65,000 in private and -5,000 public), while the unemployment rate ticked up to 4.4%, in line with expectations, but up from last month's 4.3%. Futures on Friday morning were already under pressure before the report, and fell further once it came out. In addition to the weaker February numbers, December was revised lower by -65,000 to a final tally -17,000 (originally 48,000). And January was revised lower by -4,000 to end at 126,000 (from 130,000). Healthcare was the biggest job decliner last month, shedding -28,000 jobs. Although, those losses were attributed to strikes in the Healthcare sector. The report notes that offices of physicians lost -37,000 jobs, primarily due to strike activity. But also states that hospitals added 12,000 jobs. So, if not for the strikes, healthcare would have been a net gainer of jobs. (I should also note that Healthcare was the biggest job gainer in January, adding 77,000 jobs.) Employment in Information was down -11,000 in February. Transportation and Warehousing fell -11,000 as well. Social Assistance was one of the only categories that saw net gains with 9,000 jobs added. What's interesting is the sharp contrast between February's large drop in jobs and January's large gains. Which is the anomaly? January or February? Is there one? Or will these both be smoothed away in future revisions? Prior to Friday's jobs report, the BLS on Thursday showed nonfarm business productivity rising at a 2.8% annual rate in Q4'25, well above expectations for 1.9%. It also raised Q3's rate up to 5.2% from the originally stated 4.9%. (Q3 was the strongest quarterly gain in 5 years.) What's noteworthy is that productivity growth typically slows in the late stages of expansion, but gains at the beginning of a new growth phase. And that's why people are comparing it to the 1990's. Productivity jumped back then due to the technology gains from the internet boom. And we could be seeing the same thing now thanks to the technology gains due to the AI boom. And that comports with what I have been saying for the past couple of years. The tech boom back then, driven by the internet and dot-com companies, saw the market surge by double-digits each year, for 5 long, glorious years (1995-1999). Today's AI tech boom is forecast to be just as transformative, if not more so. We have already seen three years in a row of double-digit gains. And I'm expecting at least 2 more years of double-digit gains as the AI boom is really still in its early stages. The Middle East conflict has definitely injected new volatility into the market. But historically, regional conflicts usually only have a short-term impact. In fact, over the last 40 years of geopolitical events and conflicts, markets usually bounce back quite fast. So, keep your eye on the bigger picture. Because the prospects for growth have the potential to send stocks soaring this year. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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