The strong jobs data could lead the Fed to continue raising rates.
The US economy continued to create jobs at a brisk pace in March, pushing the unemployment rate to 3.5 percent, signs of continued labor market tightness that could allow the Federal Reserve to raise rates again next month.
Nonfarm payrolls rose by 236,000 jobs last month, the Department of Labor said Friday in its closely watched employment report. Data for February was revised higher to show that 326,000 jobs were added instead of 311,000 previously reported.
Part of the slowdown in hiring reflected the waning boost from the unusually mild weather in January and February.
Economists polled by Reuters had predicted payrolls would rise by 239,000. Estimates ranged from 150,000 to 342,000. The economy needs to create about 100,000 jobs per month to keep up with the growth in the labor force.
As with most recent economic data, it was too early for the financial market stress caused by the default of two regional banks in March to show up in the employment report.
The unemployment rate fell from 3.6 percent in February to 3.5 percent. The average hourly wage rose by 0.3 percent in March, after an increase of 0.2 percent in February. That cut annual wage growth from 4.6 percent in February to 4.2 percent, which was still too high to be in line with the Fed’s inflation target of 2 percent. Fed officials are now awaiting inflation data later this month to gauge the effectiveness of their year-long monetary policy tightening campaign.
According to the CME Group’s FedWatch tool, financial markets leaned towards the US Federal Reserve raising interest rates by an additional 25 basis points during the May 2-3 policy meeting.
The Fed raised overnight rates by a quarter of a percentage point last month, but signaled that it was about to pause further rate hikes as a sign of stress in financial markets. It has raised its policy rate by 475 basis points since last March from the near-zero level to the current range of 4.75 percent to 5.00 percent.
But the labor market is losing its luster. The Department of Labor’s annual reviews of weekly claims and ongoing claims data released Thursday showed significant upgrades for both series.
Surveys from the Institute for Supply Management this week painted a gloomy picture of the job market. The number of job openings fell below 10 million for the first time in nearly two years at the end of February, even though there were 1.7 job openings for every unemployed that month, government data showed.
The labor market is expected to ease significantly from the second quarter onwards as companies become more responsive to contraction in demand due to higher borrowing costs.
Credit conditions have also tightened, making it more difficult for small businesses and households to obtain financing. Small businesses, such as restaurants and bars, have been the main drivers of job growth since the recovery from the pandemic.
Some economists have predicted that payrolls will turn negative in the second half of the year, a development they say would force the Fed to cut rates to prevent the economy from sliding into a deep recession. Fed Chairman Jerome Powell has argued against this assumption.
Economists who have predicted a rate cut this year argued that parts of the economy, such as housing, are already in recession, while tighter credit terms adopted by banks mean that lending in the economy will become more constrained.
They also noted that business confidence was at recessionary levels, while consumer confidence remained weak. (Reporting by Lucia Mutikani; editing by Paul Simao and Chizu Nomiyama)