February 2026 Jobs Report: Payrolls Fell, Reinforcing “Cooling” Narrative. Labor market weakness remains a downside risk for housing activity in 2026

What happened:

The U.S. economy lost 92,000 nonfarm payroll jobs in February, suggesting labor demand remains weak and uneven as the economy enters 2026. Most of the job gains in 2025 came from a handful of sectors — mostly healthcare — and strike activity in the healthcare sector contributed to this month’s decline, reinforcing the idea that breadth matters but also that job growth has stalled. Downward revisions to December and January also indicate a weaker labor market than previously thought.

This month also comes with a major technical caveat: the household survey incorporates annual CPS population controls — applied to January — which can create a discrete jump or drop in household employment and labor force levels. This year’s adjustment reduced the size of the civilian noninstitutionalized population but also raised the number of people who are not actively working or looking for work.

The unemployment rate changed little at 4.4% in February (vs. 4.3% in January), and wage growth held steady with average hourly earnings up 3.8% year over year (vs. 3.7% in January).

Why it matters for housing:

A weakening labor market generally increases the risk that households turn more cautious — especially first-time buyers and payment-sensitive movers. Housing activity depends heavily on confidence in job security and future income growth; when that confidence weakens, renters stay put longer, buyers delay entry, and would-be sellers hesitate to list.

There is an offset: a weaker jobs report can support lower bond yields and mortgage rates, which helps affordability at the margin. But for housing turnover, confidence often matters as much as rates — and in a cooling-labor scenario, the confidence channel can dominate.

The Zillow baseline housing forecast remains “stabilization with downside risk.” Affordability may improve, but softer hiring and elevated uncertainty can keep transactions subdued until households feel more secure.

What Zillow Senior Economist Orphe Divounguy says:

“February’s report suggests hiring remains cautious, which can weigh on housing turnover even when affordability is improving.”

“If softer growth helps mortgage rates ease, that supports affordability — but households still need strong income growth and confidence in job security to list, buy, or move.”

Numbers to know:

• Nonfarm payrolls: -92,000 in February

• Prior months revised: – 65,000 in December, -4,000 in January

• Unemployment rate: 4.4% vs. 4.3% in January; vs. 4.2% a year ago.

• Average hourly earnings: +0.4% month over month; +3.8.% year over year.

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