The US economy generated hearty job growth in March, but at a slowing rate that appeared to reflect the toll of steadily rising interest rates.
Employers added 236,000 jobs in the month on a seasonally adjusted basis, the Labor Department reported Friday, down from an average of 334,000 jobs added over the prior six months. The unemployment rate fell to 3.5 percent, from 3.6 percent in February.
The year-over-year growth in average hourly earnings also slowed, to 4.2 percent, the slowest pace since July 2021 — a sign the Federal Reserve has been looking for as it seeks to quell inflation. And the average workweek shortened with the easing of staffing shortages, which had required workers to cover extra hours.
Preston Caldwell, chief US economist at Morningstar Research, said the data offered fresh hope that the Fed could cool off the economy without causing a recession. “It does look like the range of options that are adjacent to what we might call a soft landing is expanding,” he said. “Wage growth has mostly normalized now without a massive uptick in unemployment. And a year ago, a lot of people were not predicting that.”
The report delivered welcome news to President Biden, who has said for more than a year that job creation needs to slow to about 150,000 jobs a month to curb the rapid rise in consumer prices and restore a sense of economic stability. Biden has sought to balance celebrations of strong job growth with reassurances that inflation is starting to cool.
With stock markets closed for Good Friday, bond traders provided most of the investor reaction. Yields rose, reflecting confidence that the economy remains robust enough that the Fed will proceed with further rate increases.
Even as job creation ebbs, the labor market has achieved something remarkable: the lowest unemployment rate on record for Black workers, at 5 percent, representing the smallest-ever gap between the rates for Black and white people. Historically, marginalized workers tend to get another look when recruiters have more positions to fill.
Nevertheless, forecasters expect a marked slowdown in growth later in 2023, which could result in more pink slips as profits erode and businesses opt to shed workers.
The March employment data, reflecting a 27th consecutive month of growth, was collected before two midsize banks failed and concerns arose about other financial institutions. That turn of events is expected to tighten lending across the economy, potentially reducing consumer spending and curbing the potential for smaller businesses to expand.
The Federal Reserve has been raising interest rates for more than a year to tamp down inflation, but the bank blowups complicate that effort. If the reaction is intense enough, it could even increase the chances of a deep recession.
Fed officials raised rates at their most recent meeting on March 22 and forecast that they might raise them one more time this year. Fed Chair Jerome Powell underlined that the central bank could do more or less depending on the severity of the fallout.
The March report is the last monthly jobs data before the next Fed meeting, in early May.
A contraction is already evident in an expanding range of industries, as retail, manufacturing, construction, and real estate finance — those more sensitive to borrowing costs — have either lost jobs or stayed flat over the month.
Other sectors that had been growing swiftly, including hospitals, hotels and restaurants, eased somewhat. Overall, employers in leisure and hospitality remain 2.2 percent below their pre-pandemic staffing levels; a full recovery may be a long way off.
In a sign of what’s to come, job openings dropped sharply in February, bringing the number of openings per available worker to a level that, while still elevated, is closer to the historical average. Surveys of both manufacturers and service-industry firms came in weaker than expected this week, with more employers starting to say that business is contracting rather than expanding.
“There’s only a handful of ways you can address that, and the primary one is reducing head count,” said Thomas Simons, an economist at the investment banking firm Jefferies. “Even though businesses have struggled really hard to fill positions, by the end of the summer, push is going to have to come to shove.”
Layoffs had remained low across the economy for the past year, as workers quit jobs voluntarily and companies held on to anyone who would stay. But that has started to change.
Initial claims for unemployment insurance have been trending upward, according to data released Thursday, after the Labor Department revised the figures to better reflect seasonal factors. A survey of layoff announcements collected by the outplacement firm Challenger, Gray & Christmas showed that job cuts rose 15 percent in March, and tripled from a year earlier.
Some of that downsizing reflects an adjustment by companies in fields like trucking and warehousing that vacuumed up workers as business boomed during the height of the pandemic, and now are trying to bring payrolls more in line with ebbing earnings.