EB SECURITIES: How to view February's significantly lower-than-expected non-farm data?

EB SECURITIES released a research report stating that on March 6, 2026, the US Department of Labor announced the February 2026 non-farm data: new non-farm employment decreased by 92,000, with an expectation of 59,000, the previous value revised from 130,000 to 126,000; the unemployment rate in February was 4.4%, with an expectation of 4.3%, the previous value was 4.3%; average hourly wages increased by 3.8% year-on-year, with an expectation of 3.7%, the previous value increased by 3.7%. From the perspective of interest rate cuts, the current Federal Reserve faces a balance between "stagnation" and "inflation". In the short term, there is uncertainty in interest rate cuts, but if the job market continues to deteriorate, it may become a "constraint variable" for the US-Iran situation. After the non-farm data was released, Federal Reserve officials expressed concerns about the employment data, but inflation expectations under rising oil prices may also limit the future space for interest rate cuts. Under the constraints of the domestic economy in the United States, it is not ruled out that Trump may take the initiative to ease the situation in the Middle East, creating policy space for the Federal Reserve to restart interest rate cuts in mid-year. EB SECURITIES' main points are as follows: How to view the significantly lower-than-expected non-farm data for February? From the reasons, this non-farm data was lower than expected due to temporary disturbances caused by strikes in the healthcare sector and weather factors. On the one hand, employment in the healthcare sector was the main drag on this non-farm data, mainly due to the impact of strikes by the Kaiser Permanente in California and Hawaii. On the other hand, winter storms swept through the northeastern United States at the end of February, leading to New York, New Jersey, and 7 other states declaring a state of emergency, which may have affected the employment performance of industries such as construction and offline services. It needs to be acknowledged that although there are disturbance factors causing the weakening of the February non-farm data, with the situation in the Middle East deteriorating again and oil prices rapidly rising, there is a risk of further deterioration in future employment data. From the perspective of interest rate cuts, the current Federal Reserve faces a balance between "stagnation" and "inflation". In the short term, there is uncertainty in interest rate cuts, but if the job market continues to deteriorate, it may become a "constraint variable" for the US-Iran situation. After the non-farm data was released, Federal Reserve officials expressed concerns about the employment data, but inflation expectations under rising oil prices may also limit the future space for interest rate cuts. Under the constraints of the domestic economy in the United States, it is not ruled out that Trump may take the initiative to ease the situation in the Middle East, creating policy space for the Federal Reserve to restart interest rate cuts in mid-year. Unexpected decline in new non-farm employment, employment in goods production and service sectors weakened (1) Education and healthcare industry: In February, new employment in the healthcare sector was -19,000, far lower than the previous value of +116,000, mainly due to the impact of strike events, which was also the main drag on this non-farm data. (2) Offline services, construction industry: In February, winter storms swept through the northeastern United States, with the construction industry (-11,000) and leisure and hotel industry (-27,000), and transportation and warehousing industry (-11,000) all performing poorly. Labor participation rate declined, unemployment rate increased The labor participation rate in February was 62.0%, lower than the previous value of 62.1%, indicating a decrease in the willingness of middle-aged individuals to seek employment. Looking at the number of unemployed individuals, the number of unemployed people increased by 209,000 in February, driving the U3 unemployment rate (unemployment people/labor force) to rise to 4.4%. Structurally, the number of temporary unemployed individuals increased significantly in February (increasing by 79,000, compared to a decrease of 83,000 in the previous month), which may reflect a decrease in the demand for labor by companies, while the number of permanently unemployed individuals (increasing by 30,000, compared to an increase of 38,000 in the previous month) showed little change. From the perspective of interest rate cuts, the current Federal Reserve faces a balance between "stagnation" and "inflation". In the short term, there is uncertainty in interest rate cuts, but if the job market continues to deteriorate, it may become a "constraint variable" for the US-Iran situation. After the non-farm data was released, Federal Reserve officials expressed concerns about the employment data, but inflation expectations under rising oil prices may also limit the future space for interest rate cuts. Under the constraints of the domestic economy in the United States, it is not ruled out that Trump may take the initiative to ease the situation in the Middle East, creating policy space for the Federal Reserve to restart interest rate cuts in mid-year. CME Fedwatch tool shows that after the release of non-farm data, the market expects one interest rate cut in 2026, in September, with a probability of 42.3%, and a 95.5% chance of interest rate cut suspension in March 2026. Risk warning: US economic downturn exceeds expectations; intensification of international trade frictions; geopolitical situation evolves unexpectedly.