US jobs report for March is likely to point to slower but still-solid hiring

The American economy is thought to have added 200,000 jobs in March — a more-than-respectable increase though one that would mark a slowdown from February’s vigorous gain of 275,000 and last year’s monthly average increase of 251,000

Paul Wiseman
Friday 05 April 2024 12:12 BST

The American economy is thought to have added 200,000 jobs in March — a more-than-respectable increase though one that would mark a slowdown from February's vigorous gain of 275,000 and last year's monthly average increase of 251,000.

A modest downshift in hiring could reassure the Federal Reserve that the economy isn’t running too hot, especially if wage growth, a key driver of inflation, also slowed last month. The Fed's policymakers are tracking the state of the economy, the job market and inflation to determine when to begin cutting interest rates from their multi-decade highs — a move eagerly awaited by Wall Street traders, homebuyers and people in need of cars, household appliances and other major purchases that are typically financed.

The economy is sure to weigh on Americans’ minds as the November presidential vote nears and they assess President Joe Biden's re-election bid. Many people still feel squeezed by the inflation surge that erupted in the spring of 2021. Though the inflation rate has tumbled from its peak over the past year and a half, average prices are still about 18% higher than where they were in February 2021 — a fact for which Biden could pay a political price.

When the Labor Department releases the March jobs report Friday, it's expected to show that the unemployment rate dipped from 3.9% to 3.8%, according to forecasters surveyed by the data firm FactSet. If so, it would be the 26th straight month in which the jobless rate has remained below 4%, the longest such streak since the 1960s.

The U.S. job market has proved remarkably durable since the Fed started raising rates two years ago to try to tame inflation, which by mid-2022 was running at a four-decade high. The central bank's rate hikes — 11 of them from March 2022 through July 2023 — helped slow inflation. Consumer prices were up 3.2% in February from a year earlier, far below a year-over-year peak of 9.1% in June 2022.

The much higher borrowing costs for households and businesses that resulted from the Fed's rate hikes were widely expected to trigger a recession and cause a painful rise in unemployment. Yet to the surprise of just about everyone, the economy has kept growing steadily and employers have kept hiring. Layoffs remain low.

Economists have been searching for an explanation for the economy’s resilience in the face of higher rates. Some believe that a rise in productivity — the amount of output that workers produce per hour — allowed companies to hire, raise pay and post bigger profits without having to raise prices. In addition, an influx of immigrants into the job market is believed to have addressed labor shortages and eased upward pressure on wage growth, allowing the economy to keep growing as inflation cooled.

Still, a few potential blemishes in the jobs picture have begun to emerge. For one thing, the government last month revised January’s job gain down by a substantial 124,000, although even with that revision, employers still added a healthy 229,000 jobs that month.

Economists also suspect that hiring in January and February was inflated by a technical factor: Retailers, warehouses and transportation companies had hired fewer workers than usual near the end of 2023 for the holiday shopping season. So they laid off fewer people at the start of 2024, thereby throwing off the government’s seasonal adjustments. The March hiring figures should shed light on how resilient the job market really is, said Diane Swonk, chief economist at the consulting and tax firm KPMG.

Though most industries added jobs in February, more than 70% of the hiring was in just three sectors: Health care and private education; leisure and hospitality; and government. Nancy Vanden Houten, lead U.S. economist at Oxford Economics, said she thinks the concentration in hiring likely continued in March, with those three industries accounting for perhaps 75% of added jobs.

Also giving forecasters pause is a divergence between two separate Labor Department measures of the job market’s health. The main jobs number — the one that's expected to come in at 200,000 for March — comes from a survey of 119,000 businesses and government agencies. This is called the establishment survey.

The jobless rate and other measures of employment are calculated from a separate survey of 60,000 households. This survey has looked weaker: It shows that the number of employed Americans has actually dropped by 898,000 since November. By contrast, the establishment survey showed 794,000 added jobs over the same period.

Economists generally favor the establishment survey because it derives from a much larger sample size and is less volatile. Though the numbers from the two surveys usually converge over time, the recent disparity between them has been unusually large and persistent. Some economists say they think the household survey isn’t accurately capturing the surge in foreign-born workers and is therefore undercounting employment across the country.

In the meantime, the Fed has signaled that it expects to cut rates three times this year. But it is awaiting more inflation data to gain further confidence that annual price increases are heading toward its 2% target.

Forecasters estimate that average hourly earnings rose 4.1% from March 2023, down from a 4.3% year-over-year gain in February. If so, that would be the smallest such increase since June 2021. But it would still exceed the 3.5% annual wage increase that many economists see as consistent with 2% inflation.

Economists Michael Gapen, Stephen Juneau and Shruti Mishra at Bank of America said they think a March slowdown in hiring “should reduce fears’’ that inflation will re-accelerate and give the Fed the confidence to cut rates this year.

“It should re-anchor expectations for a cooling labor market,’’ they wrote, “but not one that is showing significant signs of weakness.’’

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