WASHINGTON — The U.S. economy is believed to have added 200,000 jobs in March — a more than respectable increase, but one that would mark a slowdown from February’s strong gain of 275,000 and last year’s monthly average increase of 251,000.
A modest decline in hiring could reassure the Federal Reserve that the economy is not running too hot, especially if wage growth, a key driver of inflation, also slowed last month. Fed policymakers are monitoring the state of the economy, the labor market and inflation to determine when to start cutting interest rates from their highest levels in decades — a move that will have Wall Street traders, homebuyers and people need cars and household appliances are eagerly looking forward to. and other major purchases that are typically financed.
The economy will certainly be on American minds as the November presidential election approaches and they assess President Joe Biden’s re-election bid. Many people still feel pressured by the wave of inflation that broke out in the spring of 2021. Although inflation has fallen from its peak over the past year and a half, average prices are still about 18% higher than in February 2021 – a fact for which Biden could pay a political price.
When the Department of Labor releases its March jobs report on Friday, the unemployment rate is expected to have fallen from 3.9% to 3.8%, according to forecasters polled by data firm FactSet. If so, it would be the 26th straight month in which the unemployment rate has remained below 4%, the longest streak since the 1960s.
The U.S. labor market has proven remarkably durable since the Fed began raising rates two years ago in an effort to curb inflation, which hit a four-decade high by mid-2022. The central bank’s rate hikes – eleven from March 2022 through July 2023 – helped slow inflation. Consumer prices rose 3.2% in February from a year earlier, well below the year-on-year peak of 9.1% in June 2022.
It was widely expected that the much higher borrowing costs for households and businesses resulting from the Fed’s interest rate hikes would trigger a recession and cause a painful rise in unemployment. But to the surprise of almost everyone, the economy has continued to grow steadily and employers have continued to hire. The number of layoffs remains low.
Economists have sought an explanation for the economy’s resilience in the face of higher interest rates. Some believe that increases in productivity – the amount of output workers produce per hour – allowed companies to hire people, raise wages and make bigger profits without having to raise prices. Furthermore, an influx of immigrants into the labor market is believed to have addressed labor shortages and alleviated upward pressure on wage growth, allowing the economy to continue growing while inflation cooled.
However, some potential imperfections in the employment picture are beginning to emerge. For starters, the government last month revised down January’s job growth by a whopping 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 trucking companies had hired fewer workers by the end of 2023 than normal for the holiday shopping season. So they laid off fewer people in early 2024, wiping out the government’s seasonal adjustments. The March workforce figures should shed light on how resilient the labor market really is, said Diane Swonk, chief economist at consultancy and tax firm KPMG.
Although most industries created jobs in February, more than 70% of hiring took place in just three sectors: healthcare and private education; leisure and hospitality; and government. Nancy Vanden Houten, chief U.S. economist at Oxford Economics, said she thinks the concentration on hiring likely continued in March, with these three sectors accounting for perhaps 75% of the jobs added.
Also giving forecasters pause is a difference between two separate Department of Labor measures on the health of the labor market. The main jobs figure – expected to reach 200,000 in March – comes from a survey of 119,000 companies and government agencies. This is called the location survey.
The unemployment rate and other measures of employment are calculated from a separate survey of 60,000 households. This survey looks weaker: it shows that the number of working Americans has fallen by 898,000 since November. In contrast, the establishment survey found that 794,000 new jobs were added over the same period.
Economists generally prefer the establishment survey because it comes from a much larger sample size and is less volatile. Although the numbers from the two studies tend to converge over time, the recent disparity between the two studies has been unusually large and persistent. Some economists say they believe the household survey does not accurately reflect the increase in the number of foreign-born workers and therefore underestimates employment across the country.
In the meantime, the Fed has indicated that it expects to cut rates three times this year. But the country is waiting for more inflation data to gain further confidence that annual price increases are heading towards the 2% target.
Forecasters estimate that average hourly wages have risen 4.1% since March 2023, compared to a 4.3% year-over-year increase in February. If so, it would be the smallest increase since June 2021. But it would still be larger than the 3.5% annual wage increase that many economists say is consistent with 2% inflation.
Economists Michael Gapen, Stephen Juneau and Shruti Mishra of Bank of America said they think a slowdown in hiring in March “should ease fears” that inflation will accelerate again and give the Fed confidence to keep interest rates this way. year to decrease.
“It should re-anchor expectations for a cooling labor market,” they wrote, “but not one that is showing significant signs of weakness.”