Nonfarm payrolls growth in March was roughly in line with expectations, but showed signs that the jobs picture is in the early stages of slowing.
The Labor Department said Friday that payrolls rose 236,000 for the month, compared with the Dow Jones estimate of 238,000 and below February’s upwardly revised 326,000.
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The unemployment rate fell to 3.5%, against expectations that it would hold at 3.6%, with the reduction coming as labor force participation rose to its highest level since before the Covid pandemic.
While it was close to what economists had expected, the total was the lowest monthly gain since December 2020 and comes amid efforts by the Federal Reserve to slow labor demand to cool inflation.
Along with the wage growth came a 0.3% increase in average hourly earnings, pushing the 12-month increase to 4.2%, the lowest level since June 2021. The average workweek fell to 34.4 hours.
“Everything is moving in the right direction,” said Julia Pollack, ZipRecruiter’s chief economist. “Never in the last two years have I seen a report meet expectations as much as today.”
Although the stock market is closed for Good Friday, futures rose after the report. Government bond yields also rose.
Leisure and hospitality led the sectors with a gain of 72,000 jobs, below the pace of 95,000 over the past six months. Government (47,000), professional and business services (39,000), and health care (34,000) also saw solid increases. Retail trade saw a loss of 15,000 positions.
While the February report was revised down from the 311,000 initially reported, the January number fell to 472,000, down 32,000 from the last estimate.
An alternative measure of unemployment, which includes discouraged workers and those taking part-time jobs for economic reasons, fell to 6.7%. The household survey, which is used to calculate the unemployment rate, was much stronger than the business survey, showing a gain of 577,000 jobs.
The black unemployment rate fell 0.7 percentage points to a record low of 5%, according to data from 1972.
The report comes amid a range of signs that job creation is slowing.
In separate reports this week, companies said layoffs rose in March by nearly 400 percent from a year earlier, while jobless claims rose and private wage growth also appeared to have slowed. The Labor Department also reported that job openings fell below 10 million in February for the first time in nearly two years.
All this followed a year-long campaign by the Fed to loosen the historically tight labor market. The central bank raised its benchmark lending rate by 4.75 percentage points, the fastest tightening cycle since the early 1980s, in a bid to reduce spiraling inflation.
The job gains came in a month when the bankruptcy of Silicon Valley Bank and Signature Bank rocked the financial world. Economists expect the banking problems to have an impact in the coming months.
“The March data is effectively a look back at the world before SVB; the wage survey was conducted the week after the bank failed, too early for employers to have responded. But the shock of tighter credit conditions is coming,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Several Fed officials said this week that they remain committed to fighting inflation and see interest rates staying high for at least the near term. Market pricing changed after Friday’s report, with traders now expecting the Fed to deliver one final percentage point hike in May.
“This is great news for the Federal Reserve. They don’t have any concerns about the job market when they make their next decision,” Pollack said. “Today’s report is just a tick for them.”
However, investors worry that the Fed’s move is likely to lead to at least a shallow recession, something the bond market has been pointing to since mid-2022.
In its latest calculation through the end of March, the New York Federal Reserve said the spread between the 3-month and 10-year Treasuries indicated about a 58 percent chance of a recession in the next 12 months. The Atlanta Fed’s GDP tracker showed growth of just 1.5% in the first quarter, after pointing to a gain of as much as 3.5% just two weeks ago.