Monday, November 6, 2023

March US Job Growth Strong, Unemployment Falls to 3.5%


The US economy added 236,000 jobs in March, according to the Department of Labor’s latest employment report. The figure pushed the unemployment rate down to 3.5%, indicating a persistent labour market tightness that could lead to the Federal Reserve raising interest rates again next month. The data for February was revised upwards to show 326,000 jobs were added instead of the previously reported 311,000. However, some of the slowdown in hiring reflected the fading boost from the unseasonably mild weather in January and February. The economy needs to create around 100,000 jobs per month to keep up with growth in the working-age population.

The unemployment rate fell from 3.6% in February, while average hourly earnings rose 0.3% in March after gaining 0.2% in February. This lowered the annual increase in wages to 4.2% from 4.6% in February, which was still too high to be consistent with the Fed’s 2% inflation target. The Fed officials will now await inflation data later this month to gauge the effectiveness of their year-long monetary policy tightening campaign.

Financial markets were leaning towards the US central bank increasing rates by another 25 basis points at the May 2-3 policy meeting, according to CME Group’s FedWatch tool. The Fed last month raised its benchmark overnight interest rate by a quarter of a percentage point but indicated it was on the verge of pausing further rate hikes in a nod to financial market stress. It has hiked its policy rate by 475 basis points since last March from the near-zero level to the current 4.75% to 5.00% range.

However, the labour market is losing its shine, with surveys from the Institute for Supply Management this week offering a downbeat assessment of the labour market. Job openings fell below 10 million at the end of February for the first time in nearly two years, though there were 1.7 job openings for every unemployed person that month, according to government data. The labour market is expected to loosen up considerably starting in the second quarter as companies respond more to slowing demand caused by higher borrowing costs.

Credit conditions have also tightened, which could make it harder for small businesses and households to access funding. Small businesses, like restaurants and bars, have been the main drivers of job growth since the recovery from the pandemic. Some economists have predicted that payrolls will turn negative in the second half of the year, a development which they said would compel the Fed to start cutting rates to avoid plunging the economy into a deep recession. However, Fed Chair Jerome Powell has pushed against this assumption. Economists who have forecast a rate cut this year argued that parts of the economy, like housing, are already in recession, while tighter lending standards adopted by banks mean credit is going to be more restricted in the economy. They also noted that business sentiment was at recessionary levels, while consumer confidence remained lacklustre.

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