America’s employers have added a solid 236,000 jobs in March, suggesting that the economy remains on solid footing despite the nine interest rate hikes the Federal Reserve has imposed over the past year in its drive to tame inflation.
The unemployment rate fell to 3.5%, just above the 53-year low of 3.4% set in January.
At the same time, some of the details of Friday’s report from the Labor Department raised the possibility that inflationary pressures might be easing and that the Fed might soon decide to pause its rate hikes. Average hourly wages in March were up 4.2% from 12 month earlier, down sharply from a 4.6% year-over-year increase in February. Measured month to month, though, wages rose 0.3% from February to March, a tick up from a mild 0.2% gain from January to February.
In another sign that might reassure the Fed’s inflation fighters, a substantial 480,000 Americans began looking for work in March. Typically, the bigger the supply of job seekers, the less pressure employers feel to raise wages. The result is often an easing of inflation pressures.
In its report Friday, the government also revised down its estimate of job growth in January and February by a combined 17,000.
“The labor market continues to soften,″ said Sinem Buber, economist at the job firm ZipRecruiter. “”That should reduce inflationary pressures in the coming months and give the Federal Reserve greater confidence regarding the inflation outlook.″
Among the sectors of the economy that gained jobs in March were restaurants and bars, healthcare providers and government agencies.
Despite last month’s healthy job growth, the latest economic signs suggest that the economy may be slowing, which would help cool inflation pressures. Manufacturing is weakening. America’s trade with the rest of the world is declining. And though restaurants, retailers and other services companies are still growing, they are doing so more slowly.
For Fed officials, taming inflation is Job One. They were slow to respond after consumer prices started surging in the spring of 2021, concluding that it was only a temporary consequence of supply bottlenecks caused by the economy’s surprisingly explosive rebound from the pandemic recession.
Only in March 2022 did the Fed begin raising its benchmark rate from near zero. In the past year, though, it has raised rates more aggressively than it had since the 1980s to attack the worst inflation bout since then.
And as borrowing costs have risen, inflation has steadily eased. The latest year-over-year consumer inflation rate — 6% — is well below the 9.1% rate it reached last June. But it’s still considerably above the Fed’s 2% target.
Complicating matters is turmoil in the financial system. Two big American banks failed in March, and higher rates and tighter credit conditions could further destabilize banks and depress borrowing and spending by consumers and businesses.
The Fed is aiming to achieve a so-called soft landing — slowing growth just enough to tame inflation without causing the world’s biggest economy to tumble into recession. Most economists doubt it will work; they expect a recession later this year.
So far, the economy has proved resilient in the face of ever-higher borrowing costs. America’s gross domestic product — the economy’s total output of goods and services — expanded at a healthy pace in second half of 2022. Yet recent data suggests that the economy is losing momentum.
On Monday, the Institute for Supply Management, an association of purchasing managers, reported that U.S. manufacturing activity contracted in March for a fifth straight month. Two days later, the ISM said that growth in services, which accounts for the vast majority of U.S. employment, had slowed sharply last month.
On Wednesday, the Commerce Department reported that U.S. exports and imports both fell in February in another sign that the global economy is weakening.
The Labor Department on Thursday said it had adjusted the way it calculates how many Americans are filing for unemployment benefits. The tweak added nearly 100,000 claims to its figures for the past two weeks and might explain why heavy layoffs in the tech industry this year had yet to show up on the unemployment rolls.
The Labor Department also reported this week that employers posted 9.9 million job openings in February, the fewest since May 2021 but still far higher than anything seen before 2021.
In its quest for a soft landing, the Fed has expressed hope that employers would ease wage pressures by advertising fewer vacancies rather than by cutting many existing jobs. The Fed also hopes that more Americans will start looking for work, thereby adding to the supply of labor and reducing pressure on employers to raise wages.