The U.S. labor market continues to be a bright spot in an economy that is gradually cooling down as the Federal Reserve increases interest rates to tackle inflation. In March, employers added jobs at a healthy pace, and unemployment hit a historic low. According to the Bureau of Labor Statistics, 236,000 jobs were added in March, bringing the total payroll to 155.6 million, which is higher than the pre-pandemic levels. The unemployment rate dropped to 3.5%, the labor force participation rate increased to 62.6%, and the employment-to-population ratio reached its highest level since February 2020.
While annual wage growth has slowed down, keeping inflation under control, the labor market remains tight, and unemployment is at a half-century low. The Federal Reserve is likely to prioritize a more aggressive monetary policy stance in the coming months, and the Fed funds futures tracked by CME Group now show a 70% probability of a 25 basis point hike at the next FOMC meeting in May.
Although job growth is expected to slow down, it is predicted to remain resilient. However, a recession could result in swift changes, and recent strains to the banking system could lead to “pain for small and mid-sized businesses and their ability to hire,” warns Daniel Zhao, lead economist at company rating firm Glassdoor.
In March, private sector workers’ average hourly earnings rose 0.3% to $33.18, marking the slowest annual gain since June 2021. Slower wage growth helps keep inflation under control, indicating that higher rates are having the Fed’s intended effect.
The data suggesting a resilient economy was welcomed by traders, and U.S. stock futures erased losses while bond yields rose. S&P 500 futures were slightly in the green, and the yield on 10-year Treasury notes rose to 3.35% in abbreviated holiday trading sessions.
- U.S. employers added 236,000 jobs in March, which was close to the estimated 240,000.
- The unemployment rate dropped to a 50-year low of 3.5%, and the labor force participation rate increased to its highest level since the pandemic began.
- Private sector wages rose by 0.3% from February, and 4.2% year-over-year, which is the slowest annual gain since June 2021.
- The sectors with the highest gains in employment opportunities were leisure and hospitality, government, professional and business services, and healthcare, while retail trade saw a decline in job opportunities.
- Due to a robust labor market, it is more likely that the Federal Reserve officials will raise interest rates at their next policy meeting in May.
Sectoral Gains
In March, the leisure and hospitality sector once again led the way in job gains, adding 72,000 positions. Specifically, food services and drinking places saw a gain of 50,000 jobs. However, the monthly gain falls short of the average of 95,000 over the past six months. While the sector is on the road to recovery, it still lags behind pre-pandemic employment levels by 2.2%.
Government employment also saw an increase of 47,000 jobs, consistent with its average monthly gain over the last six months. Professional and business services added 39,000 positions, with the bulk of the gain coming from professional, scientific, and technical services, which added 26,000 jobs. The healthcare sector also experienced job growth, adding 34,000 positions led by home health care services (+15,000), hospitals (+11,000), and residential care facilities (+8,000).
Social assistance saw an increase of 17,000 jobs, and transportation and warehousing added 10,000 jobs. However, sectors such as mining, quarrying, and oil and gas extraction, construction, manufacturing, wholesale trade, information, and financial activities recorded little change from the previous month. Retail trade, on the other hand, saw a decline of 15,000 jobs, primarily driven by decreases at home furnishings, electronics, and appliance retailers (-9,000).