The March jobs report was pretty strong by almost any measure. Some 236,000 new jobs. A superlow 3.5% unemployment rate. And more Americans entering the labor force looking for work.
Not exactly what the Federal Reserve wanted as it seeks to slow the economy and prevent a tight labor market from exacerbating inflation.
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So why are some economists and lawmakers spreading the good cheer?
The employment report also contained suggestive hints that the labor market is softening in what would be welcome news to the Fed.
Start with hiring. Although job creation is still historically strong, the rate of employment growth has slowed to an average of 345,000 a month in 2023 from 561,000 in the same three-month period in 2022.
The share of people finding jobs or looking for one, what’s more, rose a tick to a new pandemic-era high of 62.6%. That is, almost 63 of every 100 Americans are in the labor force.
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The last time the so-called labor-force participation rate was that high was in February 2020 — a month before the pandemic started.
When more people look for work, companies don’t have to compete as much for workers and offer sharply higher pay than they normally would.
The Fed is worried that a surge in wages over the past few years could feed into already high inflation and make prices harder to get under control.
The good news is, wage growth is slowing, perhaps abetted by a higher participation rate.
The increase in hourly pay over the past 12 months slowed to 4.2% in March from 4.6% in the prior month and a 40-year high of 5.9% last year.
Wages are now rising just modestly faster than they were before the pandemic. Hourly wages increased by 3.3% in 2019, when inflation was exceedingly low.
The breadth of hiring, meanwhile, has also narrowly considerably. Put another way, fewer industries are hiring compared to a year earlier. That’s another sign of emerging labor-market slack.
Taken altogether, some see the job market cooling off enough to give the Fed more leeway to put a pause soon on its interest-rate hikes.
“The latest jobs report released today shows that the labor market continues to soften,” said Sinem Buber, lead economist at ZipRecruiter. “That should reduce inflationary pressures in the coming months and give the Federal Reserve greater confidence regarding the inflation outlook.”
Not everyone is convinced.
“You are seeing some softening, there is no doubt,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “But compared to the prepandemic norm it’s pretty strong.”
Baird said the Fed won’t be able to overlook the low unemployment rate, a clear sign that the labor market is still overheated.
The central bank had forecast the rate to rise this year to 4.5% from the current 3.5% level, but it unlikely to soften that much so barring a sharp slowdown in hiring or even a downturn in the economy.
“There is more work to be done to get to where [the Fed] wants to go,” he said.
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