Job growth slowed in March as a winter hiring spree lost steam while high interest rate hikes and inflation finally appeared to take a bigger toll on the labor market.
U.S. employers added 236,000 jobs, a solid gain but the weakest showing since December 2020. The unemployment rate, which is calculated from a separate survey, fell from 3.6% to 3.5%, close to a 50-year low, the Labor Department said Friday.
The unemployment rate for Blacks fell sharply to 5%, a record low.
Economists had forecast 230,000 job gains, according to a Bloomberg poll.
“The labor market is still strong, but it’s gliding slowly back down to Earth,” said Daniel Zhao, lead economist ag Glassdoor, a job search site.
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What is the labor force participation rate?
In an encouraging sign that could ease wage growth and inflation, the share of adults working or looking for a job edged up to 62.6% as the sturdy labor market drew in more Americans on the sidelines. That’s the highest since the pandemic started in early 2020 but still leaves it well below the pre-COVID level of 63.4%.
A larger labor supply helps ease worker shortages and puts downward pressure on pay as employers don’t need to compete as intensely for job candidates.
What is the wage growth rate?
Average hourly earnings rose 9 cents to $33.18, pushing down the annual increase to 4.2% – a nearly two-year low – from 4.6% the previous month.
The sharp slowdown in job and wage growth should be welcomed by a Federal Reserve that has been seeking a moderation in pay increases in service industries such as health care and education, which have been contributing significantly to inflation. The report thus could bolster the Fed’s tentative plan to raise its key interest rate just once more by a quarter percentage point and then halt its aggressive hiking campaign aimed at taming consumer price increases.
What industries are hiring the most now?
Leisure and hospitality, the sector hit hardest by the pandemic, led the job gains with 72,000, mostly at restaurants and bars. Professional and business services added 39,000; health care, 34,000; and transportation and warehousing, 10,000.
Federal, state and local governments added 47,000 jobs.
But retail chopped 15,000 jobs and construction shed 9,000 after mild temperatures prompted strong hiring early in the year.
Several forces seemed to hint at a downshifting in job growth.
Businesses pulled forward their spring hiring to early in the year because of longstanding worker shortages and mild winter weather, Goldman Sachs and Capital Economics wrote to clients. Snowstorms in the Northeast and Midwest also probably curtailed job gains, Goldman said.
Meanwhile, employers posted 9.9 million job openings in February, the lowest total since May 2021 and a sign of softer demand for workers.
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How does the Fed affect employment?
Over the past year, the Fed has hiked its key interest rate from near zero to almost 5% to beat back inflation, its boldest such campaign since the early 1980s.
While the job market mostly has defied the higher borrowing costs, rate increases effect activity with a lag and will likely curtail business hiring and investment more substantially this year, economists say. Most analysts predict a recession will begin in the months ahead.
At the same time, the labor market has been remarkably resilient. The nation’s nearly 10 million job openings are still historically high. And employers grappling with labor shortages are reluctant to lay off workers out of fears they won’t find them when the economy bounces back.
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Still, economists say a slowdown is coming.
Ian Shepherdson of Pantheon Macroeconomics reckons hiring will slow more dramatically in April and May and the economy will lose jobs over the summer. Besides the Fed’s rate increases and stubborn inflation, Silicon Valley Bank’s collapse and its negative impact on bank lending are also expected to dampen employment growth.