Job growth likely slowed in March as rising interest rates, persistent inflation, and growing fears of recession weighed on employer demand for workers.
A slowdown would mark a step toward normal levels of growth for the U.S. labor market, which has been exceedingly tight for more than a year. But it could also underscore that job creation remains remarkably healthy, even as other aspects of the economy show signs of weakness.
Economists forecast the U.S. economy added 240,000 jobs in March, consensus expectations from FactSet show, marking a step down from February’s addition of 311,000 jobs and roughly matching the pace set in December. Economists also expect the unemployment rate to hold steady at 3.6%.
Investors and economists have been expecting to see signs that the economy has begun to deteriorate ever since the early-March collapse of Silicon Valley Bank and Signature Bank. While the March jobs report will be closely parsed for clues as to where the labor market is heading, it is unlikely to show what impact, if any, the banking turmoil has had on workers, given that the full effects are still trickling out into the broader economy.
What the March report will show, economists say, is continued strength in the labor market, where job growth has averaged 408,000 jobs a month so far this year. In January, the U.S. economy added more than half a million jobs.
“Broadly, it’s going to look like a pretty healthy number across the board, because there’s still very little evidence that demand for labor has really waned here recently,” Thomas Simons, an economist with Jefferies, says of the March report.
A jobs report for March along the lines of economists’ expectations would be welcome news for the Federal Reserve, which has made clear it needs to see the labor market slow somewhat in order to aid officials in their fight to tamp down inflation. Strong demand for workers has kept wages elevated, driving services costs higher.
But even a mild slowdown in line with forecasts would suggest the Fed likely has more work to do to cool the labor market further. Fed Chairman Jerome Powell has said the economy needs to create only about 100,000 jobs per month—less than half of March’s forecast—to keep up with population growth.
The March report could show a mixed picture on the wage front. Economists expect average hourly earnings to rise 0.3% in March, up from 0.2% in February. But they see the annual pace of wage growth slowing to 4.3% from 4.6% the month before. That would represent a much faster growth rate than the roughly 3.5% pace that many economists believe would be consistent with the Fed’s 2% inflation target.
Despite optimistic expectations, there is some reason to expect the data for March could come in weaker as the resilient labor market finally begins to cool off.
Data released earlier this week for the month of February showed job openings declined more than expected and have fallen below 10 million for the first time since May 2021. That suggests that demand for workers is waning, although it remains historically high, and layoffs decreased over the month.
Manufacturing data out this week showed employment contracting. And jobless-claims data have been revised upward significantly due to a change in seasonal calculations. That adjustment “makes the case that the U.S. labor market has been weakening since the beginning of February of this year,” says Eugenio Aleman, chief economist with Raymond James.
The recent warning signs have led some economists to acknowledge that the risk to their forecast is weighted to the downside, meaning job growth is more likely to come in below expectations than above.
Wells Fargo, for example, has twice revised its forecast downward this week, from 240,000 initially to 190,000 now. The changes reflect the cooler-than-expected ISM data and the revised unemployment-claims data, says Jay Bryson, the firm’s chief economist.
Yet, there is also reason to think the labor market could prove stronger than anticipated: Job growth has come in above economists’ consensus expectations in each of the past 11 months.
The Labor Department will release the March data at 8:30 a.m.
Write to Megan Cassella at [email protected]
Read the full article here