Can anything slow down the US job market?
Hiring accelerated in March as employers added a booming 303,000 jobs despite high interest rates, stubborn inflation and growing financial strain on households.
Unemployment fell to 3.8% from 3.9%, the Labor Department said Friday.
Economists surveyed by Bloomberg had estimated that 213,000 jobs were created last month.
Wage gains for January and February were revised upward by a total of 22,000, painting an even more robust picture of job growth earlier this year. The January figure was increased from 229,000 to 256,000, while the February figure was downgraded slightly from 275,000 to 270,000.
The blockbuster report reinforces the view that the economy is on track for a “soft landing,” a scenario in which the Federal Reserve suppresses inflation without triggering a recession. But the robust labor market could prompt the Fed to delay rate cuts until later in the year to ensure inflation is subdued before it acts, economists say.
Are wages rising faster than inflation?
Average hourly wages rose 12 cents to $34.69, reducing the annual increase to 4.1% from 4.3%.
Since peaking at 5.9% in March 2022, average wage growth has slowed as labor shortages have eased. However, it is still above the 3.5% pace that Federal Reserve officials said would be in line with its 2% inflation target.
Meanwhile, many Americans are benefiting because typical wage increases over the past year have outpaced inflation, giving them more purchasing power.
What will be the impact on interest rates in 2024?
Fed Chairman Jerome Powell recently said that officials no longer fear that strong job growth could overheat the economy and trigger another sharp rise in prices. More significantly, wage increases that could fuel inflation continued to decline last month.
Still, the explosive report could reassure Fed officials that the economy is in little danger of a significant slowdown or slipping into recession, delaying the first rate cut beyond the June timeframe expected by markets.
“The record 303,000 nonfarm payrolls in March reinforce the Fed's position that the economy's resilience means it can take its time with interest rate cuts, which may now not begin until the second half of this year,” wrote economist Paul Ashworth from Capital Economics a note for customers.
Since March 2022, the Fed has raised its key short-term interest rate from near zero to a 23-year high of 5.25% to 5.5%, but has kept it stable since last July as inflation has eased. Officials have forecast three rate cuts this year that would boost the stock market, but that timeline could shift if inflation begins to ease or the economy and job market remain hot.
The Fed's preferred inflation measure rose to 2.5% in February, above its 2% target but well below the four-decade high of 7% it reached in mid-2022.
Is the job market still strong?
Job growth has gradually slowed in 2021 and 2022 following a post-pandemic hiring surge, but not nearly as much as expected as employers added well over 200,000 jobs per month over the winter. Economists pointed to unusually warm weather in December and low layoffs in January after fewer holiday workers were hired in the fall.
Additionally, net job gains were boosted by employers' reluctance to lay off workers after struggling with two years of COVID-related labor shortages. However, due to high borrowing costs and uncertainty about the economy in the presidential election year, hiring has fallen below pre-pandemic levels.
As a result, some forecasters expect the forces that have supported wage growth to weaken, leading to fewer than 100,000 new jobs per month by midyear.
The lagged impact of the Federal Reserve's aggressive rate hikes to combat inflation is likely to dampen business spending and hiring. Americans' COVID-related savings have largely been depleted. And low- and middle-income households are feeling the strain of record-high credit card debt.
However, Goldman Sachs expects a huge influx of immigrants to further boost labor supply and hiring this year, noting that job vacancies are still well above pre-crisis levels. Last month, immigration could have boosted job growth by as much as 50,000 to 290,000, Goldman said.
Comments are closed.