Gradually slowing job gains and a growing labor force in March delivered welcome news to President Biden, nearly a year after he declared that the job market needed to cool significantly to tame high prices.
“This is a good job report for hard-working Americans,” Mr. Biden said in a written statement on Friday morning.
So much for “nobody wants to work anymore.”
The U.S. labor force added nearly half a million workers last month, the Labor Department said Friday. The share of Americans ages 25 to 54 — what economists consider prime working age — who were working rose to 80.7 percent, the highest rate since 2001.
For much of the past two years, economists and policymakers have fretted about the slow return of workers to the labor force in the wake of the pandemic. That was a problem for businesses as they sought to meet a rush of demand from consumers. And it was a problem for officials at the Federal Reserve, who worried that intense competition for workers was driving up wages and contributing to inflation.
But now those higher wages — combined with the slow normalization of the economy as the pandemic ebbs — appear to be drawing people back to work. The labor force has grown by more than two million workers over the past six months, and the participation rate — the share of adults who have jobs or are actively looking for one — in March hit its highest level since the very beginning of the pandemic. That rebound is particularly striking because retiring baby boomers are putting steady downward pressure on labor force participation.
Still, while the rebound is good news for the economy, it could reflect, at least in part, the difficulties facing individual families. Rising living costs and dwindling savings could be forcing some people to return to work, while fear of a possible recession could be pushing people to seek out jobs sooner rather than later.
While some larger industries saw increased hiring in March, other sectors lost jobs. In leisure and hospitality, where employment remains below the pre pandemic level, employers added 72,000 jobs, below last month’s 105,000 gain.
Despite gains, some industries lost jobs
Change in jobs in March 2023, by sector
+72,000 jobs
Leisure and hospitality
+65,000
Education and health
+47,000
Government
+39,000
Business services
–1,000
Manufacturing
–9,000
Construction
–14,600
Retail
Job growth slowed in March as a winter hiring spree lost steam while high-interest rate hikes and inflation finally appeared to take a bigger toll on the labor market.
U.S. employers added 236,000 jobs, a solid gain but the weakest showing since December 2020. The unemployment rate, which is calculated from a separate survey, fell from 3.6% to 3.5%, close to a 50-year low, the Labor Department said Friday.
Economists had forecast 230,000 job gains, according to a Bloomberg poll.
"The labor market is still strong, but it’s gliding slowly back down to Earth,” said Daniel Zhao, lead economist at Glassdoor, a job search site.
What is the labor force participation rate?
In an encouraging sign that could ease wage growth and inflation, the share of adults working or looking for a job edged up to 62.6% as the sturdy labor market drew in more Americans on the sidelines. That’s the highest since the pandemic started in early 2020 but still leaves it well below the pre-COVID level of 63.4%.
A larger labor supply helps ease worker shortages and puts downward pressure on a pay as employers don't need to compete as intensely for job candidates.
What is the wage growth rate?
Average hourly earnings rose 9 cents to $33.18, pushing down the annual increase to 4.2% from 4.6% the previous month.
The sharp slowdown in job and wage growth should be welcomed by a Federal Reserve that has been seeking moderation in pay increases in service industries such as health care and education, which have been contributing significantly to inflation. The report thus could bolster the Fed's tentative plan to raise its key interest rate just once more by a quarter percentage point and then halt its aggressive hiking campaign aimed at taming consumer price increases.
What industries are hiring the most now?
Leisure and hospitality, the sector hit hardest by the pandemic, led the job gains with 72,000, mostly at restaurants and bars. Professional and business services added 39,000; health care, 34,000; and transportation and warehousing, 10,000.
Federal, state, and local governments added 47,000 jobs.
But retail chopped 15,000 jobs and construction shed 9,000 after mild temperatures prompted strong hiring early in the year.
Several forces seemed to hint at a downshifting in job growth.
Businesses pulled forward their spring hiring too early in the year because of longstanding worker shortages and mild winter weather, Goldman Sachs and Capital Economics wrote to clients. Snowstorms in the Northeast and Midwest also probably curtailed job gains, Goldman said.
Meanwhile, employers posted 9.9 million job openings in February, the lowest total since May 2021 and a sign of softer demand for workers.
How does the Fed affect employment?
Over the past year, the Fed has hiked its key interest rate from near zero to almost 5% to beat back inflation, its boldest such campaign since the early 1980s.
While the job market mostly has defied the higher borrowing costs, rate increases affect activity with a lag and will likely curtail business hiring and investment more substantially this year, economists say. Most analysts predict a recession will begin in the months ahead.
At the same time, the labor market has been remarkably resilient. The nation’s nearly 10 million job openings are still historically high. And employers grappling with labor shortages are reluctant to lay off workers out of fears they won’t find them when the economy bounces back.
How does the Silicon Valley Bank crash affect the economy?
Still, economists say a slowdown is coming.
Ian Shepherdson of Pantheon Macroeconomics reckons hiring will slow more dramatically in April and May and the economy will lose jobs over the summer. Besides the Fed’s rate increases and stubborn inflation, Silicon Valley Bank’s collapse and its negative impact on bank lending are also expected to dampen employment growth.
3 things to know from the March jobs report:
— Yahoo Finance (@YahooFinance) April 7, 2023
• 236,000 non-farm payroll jobs were added.
• The unemployment rate fell from 3.6% to 3.5%.
• Year-over-year wage growth slowed, coming in at 4.2%. pic.twitter.com/QLO1sGXuDi
“The labor market is cooling down, and the issue for the Fed still is it needs to cool down in a gradual fashion over the next several months,” @apolloglobal Chief Economist Torsten Slok says on the March jobs report data.
— Yahoo Finance (@YahooFinance) April 7, 2023
Apollo Global Management is Yahoo's parent company. pic.twitter.com/9qaRfjVSwq