adminJobs grew at a brisk pace in March, but wage growth was contained, confirming a belief among economists that the U.S. can continue to expand employment without fanning inflation.
U.S. employers added a seasonally adjusted 303,000 jobs in March, the Labor Department reported Friday, significantly more than the 200,000 economists expected. The unemployment rate slipped to 3.8%, versus February’s 3.9%, in line with expectations.
Average hourly earnings rose 4.1% from a year ago, the smallest gain since June 2021.
Investors have been on edge recently over economic data suggesting that Federal Reserve interest-rate cuts might not be imminent. The strength of Friday’s report feeds into those concerns—though that is less because it stirs worries of inflation, and more because it leaves the central bank comfortable with its wait-and-see stance on interest rates.
When good news is good news
All three U.S. stock indexes were up Friday after a lackluster week, with investors choosing to focus on the strength of the economy rather than what the report might mean for the Fed.
For most of 2022, senior Fed officials saw strong economic activity and hiring as a headwind to bringing down inflation. They worried that tighter labor markets would keep pressure on wages and, in turn, prevent inflation from falling back to the Fed’s 2% goal in a reasonable amount of time. Investors tended to view good jobs news as bad for the market.
Fox Business: 303K jobs added to US economy in March
Fed Chair Jerome Powell in recent months has signaled, however, that he no longer regards strong hiring as something to fear. That is because the labor force has been growing steadily, largely due to a strong rebound in immigration. As a result, brisk hiring isn’t stoking concern on Powell’s part that the economy is at significant risk of overheating.
“The economy actually isn’t becoming tighter, which it ordinarily would. It’s actually becoming a little looser, and you’re seeing inflation come down—very unusual situation,” Powell said on Wednesday.
Instead of focusing on hiring, Powell and other Fed officials have suggested that inflation data in the coming months will be much more important in determining whether the central bank can cut rates in June. The consumer-price index for March, which is set for release by the Labor Department next week, will be closely watched because inflation was firmer than expected in January and February.
Michael Feroli, chief U.S. economist at JPMorgan Chase, said Friday he expected the Fed to push back the timing of its first cut to July instead of June given the “apparent absence of any cracks developing” in the economy.
A few Fed officials have said there is no need to consider lowering rates pre-emptively. Given the “meaningful risks” that inflation runs at closer to 3% than the Fed’s 2% goal, it is “much too soon to think about cutting interest rates,” said Dallas Fed President Lorie Logan in remarks Friday.
Traders continue to walk back expectations for interest-rate cuts this year. Interest-rate futures now imply that one or two quarter-point cuts are more likely to the market than the three forecast by Fed officials in March.
Immigration and the labor supply
Like the Fed, many economists believe that, in part as a result of immigration, the supply of available workers has increased. If that is right, the number of jobs can grow faster.
Supply alone isn’t enough to generate job gains, however; there has to be demand. At the moment, it still looks as if there is plenty of that. Layoff activity remains low, and the number of unfilled jobs is high, with the Labor Department reporting earlier this week that there were 8.8 million job openings as of the end of February. The job-opening rate, or openings as a share of filled and unfilled positions, was 5.3%. That has fallen over the past year, but in prepandemic 2019—a period of strength for the job market—that ratio averaged 4.5%.
But the share of people quitting their jobs each month has fallen to prepandemic levels, which indicates the intensity with which businesses were hiring away workers from each other has subsided. Moreover, the private-sector job market has been drawing most of its strength from just two sectors—private education and healthcare, and leisure and hospitality.
Healthcare and hospitality
Private education and healthcare added 88,000 jobs last month, while leisure and hospitality added 49,000. Combined, the two have accounted for 1.5 million of the 2.9 million jobs the U.S. has gained in the past year.
Economists at Bank of America call those sectors “high touch.” Much of the work must be done in person, and a lot of it—such as waiting tables or working in a hospice—entails face-to-face interactions.
High-touch employment fell sharply when the pandemic hit, and even now, four years later, appears low. Relative to the trend during the five years before the pandemic, there are some 2.7 million fewer jobs in those sectors than might have been expected.
This raises a question, points out Bank of America economist Michael Gapen. “Should we expect employment in those sectors to return to their prior trend line? Or are there structural reasons to think maybe the employment gap will not close and therefore this catch-up effect could finish sooner?” he said.
He said he thinks the answer might be mixed. Lately, employment growth in leisure and hospitality has moderated. One reason why is that for some of those employers, business is still down—think restaurants near offices where many people are still working from home a few days a week. Another is that some businesses adopted practices when labor became short that probably won’t get undone. Lots of restaurants, for example, introduced QR codes in place of paper menus, allowing customers to place orders with their phones rather than waitstaff.
For private education and healthcare, the story could be different. The loss of jobs these areas experienced when the pandemic hit was truly exceptional: Other than in 2020, employment in the sector has experienced near constant growth over the 85 years of available data. Moreover, the healthcare needs of an aging U.S. population will probably only grow. The sector is still about a million jobs short of its old trend. If that gap continues to narrow, as Gapen expects it will, it could help bolster job growth into next year.
Nick Timiraos and Eric Wallerstein contributed to this article.
Write to Justin Lahart at Justin.Lahart@wsj.com
