A now hiring sign outside a business in Somerville, Mass., on Sept. 1, 2022.BRIAN SNYDER/Reuters
U.S. job growth blew past expectations in March and wages increased at a steady clip, suggesting the economy ended the first quarter on solid ground and potentially delaying anticipated Federal Reserve interest rate cuts this year.
The Labor Department’s closely watched employment report on Friday also showed the unemployment rate fell to 3.8 per cent last month from 3.9 per cent in February. The decline in the jobless rate reflected a sharp rebound in household employment, which more than absorbed the 469,000 people who joined the labour force.
The unemployment rate has remained below 4 per cent for 26 straight months, the longest such stretch since the late 1960s. The U.S. economy is outshining its global peers even though the Fed has raised rates by 525 basis points since March 2022 to dampen inflation. The labour market is benefiting from a rise in immigration over the past year.
Though the strong hiring did not alter expectations that the U.S. central bank would start easing rates this year given increased labour supply, financial markets are doubtful of the three cuts envisaged by policy-makers.
“While the favourable supply-side developments are consistent with (Fed Chair Jerome) Powell’s benign view of the outlook, the apparent absence of any cracks developing on the demand side should lessen the urgency to ease policy, and we are pushing back our call for the first Fed cut from June to July,” said Michael Feroli, chief U.S. economist at JPMorgan in New York.
Nonfarm payrolls increased by 303,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said. The economy added 22,000 more jobs than previously estimated in January and February. Economists polled by Reuters had forecast 200,000 new jobs in March, with estimates ranging from 150,000 to 250,000.
Job gains in the first quarter averaged 276,000 per month compared to the October-December quarter’s average of 212,000.
Economists say most businesses locked in lower borrowing costs prior to the U.S. central bank’s tightening cycle, providing some insulation from higher borrowing costs and allowing them to keep their workers.
Industries sensitive to interest rates, like construction, are also boosting hiring as financial conditions ease.
About 59.4 per cent of industries added jobs last month, further easing worries that employment was concentrated in too few sectors. The health care sector led the broad increase in employment, adding 72,000 jobs that were spread across ambulatory services, hospitals as well as nursing and residential care facilities.
Government payrolls increased by 71,000 jobs, boosted by local and federal government hiring.
The construction sector added 39,000 jobs, about double the average monthly gain of 19,000 over the last 12 months.
Leisure and hospitality payrolls rose 49,000, returning employment to its pre-pandemic level. There were also increases in employment in the social assistance, retail and wholesale trade sectors.
Financial activities reported modest gains in payrolls as did mining and logging, transportation and warehousing.
Professional and business services employment rose slightly, with temporary help – seen a as harbinger for future hiring – posting a small decline. But manufacturing added no jobs last month as did the information sector. Utilities shed 400 jobs.
Average hourly earnings rose 0.3 per cent in March after gaining 0.2 per cent in the prior month as some weather-related distortions faded. Wages increased 4.1 per cent on a year-on-year basis, the smallest gain since June 2021, after advancing 4.3 per cent in February.
Wage growth in a 3 per cent-3.5 per cent range is seen as consistent with the Fed’s 2 per cent inflation target.
Inflation data next week will be crucial in determining the timing of the first rate cut. The Fed has kept its policy rate at the current 5.25 per cent-5.50 per cent range since last July. Following the report, financial markets saw two rate cuts this year, according to LSEG data.
“While we … believe the Fed is likely to proceed with three rate cuts this year, reports like these may tilt some policy-makers toward expecting fewer rate cuts in 2024,” said Lydia Boussour, senior economist at EY-Parthenon in New York.
Dallas Federal Reserve President Lorie Logan said Friday that an inflation landscape increasingly beset by upside risks argues against any imminent push toward easier monetary policy.
“I believe it’s much too soon to think about cutting interest rates,” Logan said in remarks prepared for a speech at Duke University.
Before lowering rates, “I will need to see more of the uncertainty resolved about which economic path we’re on. And, as always the (Federal Open Market Committee) should remain prepared to respond appropriately if inflation stops falling,” she said.
Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
The average workweek rebounded to 34.4 hours last month, from 34.3 hours in February. That together with the strong payrolls boosted aggregate hours worked 0.5 per cent, consistent with expectations for solid economic growth in the first quarter.
Gross domestic product growth forecasts for the January-March quarter are as high as 2.5 per cent annualized rate. The economy grew at a 3.4 per cent pace in the fourth quarter.
The strong job gains seen in the establishment survey last month were mirrored in the smaller and volatile household survey, from which the jobless rate is derived. Household employment rebounded by 498,000 jobs after declining for three straight month.
The two surveys had diverged sharply in recent months. Economists attributed the divergence to an increase in labour supply through immigration that was not yet being captured in the household survey.
The Congressional Budget Office recently upgraded its immigration estimate for 2023 to 3.3 million from 1.0 million.
The BLS uses U.S. Census population estimates and will likely update the population flows in its annual benchmark revision next year.
Researchers at the Brookings Institution in Washington estimated the new CBO projections suggested the labour market in 2023 could accommodate employment growth of 160,000 to 230,000 per month, compared to previous projections of 60,000 to 130,000, without adding pressure to wages and price inflation.
The labour force participation rate, or the proportion of working-age Americans who have a job or are looking for one, rose to a four-month high of 62.7 per cent from 62.5 per cent in February.
The employment-to-population ratio, viewed as a measure of an economy’s ability to create employment, also climbed to a four-month high of 60.3 per cent from 60.1 per cent in February.
“Clearly, the job market has plenty of gas in the tank in terms of demand, and also has room to run in terms of worker supply,” said Nick Bunker, economic research director for North America at Indeed Hiring Lab in Tampa, Florida. “That’s a good thing for all of us.”