Five notes from the strong March jobs report

The Labor Department reported on Friday that the unemployment rate fell to 3.5 percent and the US economy added 236,000 jobs in March as the labor market continued to show signs of strength.

Wages growth appears to be slowing along with corporate profits, which remain well above pre-pandemic levels, as inflation has fallen since the middle of last year.

Inside the jobs report: The unemployment rate fell to 3.5 percent as the labor market showed strength

The numbers are the latest sign that the US economy remains in fundamentally good shape, behind turbulent markets that have been spooked by a series of bank failures in the US and Europe that have led to government interventions on both sides of the Atlantic.

Here are five notes from Friday’s jobs report.

The labor force participation rate rose and unemployment for black Americans reached a record low

Both the labor force participation rate and the employment-to-population ratio are at their highest levels since the coronavirus pandemic began in 2020. This is in line with the Federal Reserve’s mandate on maximum employment.

The US civilian workforce increased by 480,000 workers to 166.7 million workers. Personnel as a proportion of the population who are not incarcerated or in the military is 60.4 percent, up 0.2 percentage points from last month.

The labor force participation rate for workers of majority ages 25-54 is at the highest level since January 2020 at 83.1%.

Meanwhile, the unemployment rate for black Americans is at a record low at 5 percent, a fact that is drawing some lawmakers’ attention.

“The March jobs report released today finds the lowest unemployment rate for Black Americans ever, and the highest employment-to-capital ratio of adult population since mid-2001,” Rep. Don Baer, ​​member of the tax writing chair. and Means Committee, he wrote online on Friday.

The low unemployment rate and slowing wage growth is good news for the Federal Reserve

Despite nine consecutive interest rate hikes by the Federal Reserve and one of the fastest cycles of monetary policy tightening in recent history, unemployment remains near its lowest levels in 50 years.

The 236,000 jobs added in March are down from the 311,000 jobs added in February and the 504,000 in January. But the decline in the unemployment rate from 3.6 percent in February shows that the flood gates holding back the flood of lost jobs remain, amid warnings from lawmakers and economists.

Underscoring the astonishing ability of the US labor market to outperform expectations, another downside loss [nonfarm payrolls] It was with the March data of last year, and that wasn’t exactly a big mistake,” Deutsche Bank analysts wrote in a note Friday to investors.

Meanwhile, slowing wage growth, which is bad for workers, is a welcome sign for the Federal Reserve as the central bank weighs more interest rate increases to slow the economy.

Wages increased 3.2 percent between January and March, down from 3.6 percent from December to February. Annual wage growth fell to 4.2 percent from 4.6 percent, compared to 5.9 percent last year. Labor costs are the largest component of prices, which has historically made them a major driver of inflation, although this is likely not the case now.

The Fed lacks the legal authority to lower rates through windfall dividend taxes, rate caps or other discipline mechanisms, which are squarely within the purview of the White House and Congress. Instead, the Fed aims to tame inflation through the labor market, so lower levels of wage growth could mean the Fed can pause from raising interest rates.

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The chances of a 0.25 percentage point rate hike at the next Fed rate-setting committee meeting in May are 67 percent, according to CME Group’s Fed Watch tool.

However, the March jobs data may allow the Fed to assess the impact of its hikes so far without adding more pressure on the economy.

“While the unemployment rate remains at historic lows, this morning’s jobs report showed signs of a slowdown in the labor market,” investment analyst Ben Vaskey of Orion Portfolio Solutions wrote in an analysis.

More people continued to enter the workforce, taking pressure off higher job openings and bloated wage growth. While inflation remains well above target, this month’s lower CPI, lower personal consumption expenditures, and now cooler employment growth could provide a basis for a halt to rate hikes.

This will be the tenth consecutive increase since the Fed began raising interest rates in March last year. Some economists are calling on the Fed to stop.

“The Fed’s sharp increases in interest rates have been bombarding the labor market. But economist Rakin Mabud of the Groundwork Collaborative wrote in an analysis that workers are not to blame for rising prices and should not lose their jobs in the name of fighting inflation.

“If the Fed gets back into the well at the next FOMC meeting, it will only push our economy into this devastating and totally unnecessary recession.”

All eyes are on the CPI next week

Inflation has been slowing even though the job market is refusing to quit.

Whether the downward trend in inflation continues in the face of a strong labor market, we will see next week with the release of the latest Consumer Price Index (CPI) for March. The annual consumer price index fell from 6.4 percent in January to 6 percent in February after peaking at 9.1 percent in June.

The steady decline in inflation without a significant increase in unemployment has thrown many big-name economists into a vicious circle.

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But in the immediate aftermath of the pandemic’s initial supply disruptions that drove up inflation, a picture of “vendor inflation” is emerging: price hikes driven by companies in highly concentrated markets that have little incentive to cut profit margins.

“We argue that sellers’ inflation generates a general price hike that may be temporary, but can also lead to self-sustaining inflationary spirals under certain circumstances,” University of Massachusetts economist Isabella Weber writes in a recent paper.

Recession risks may depend on the Fed’s actions

Despite the fallout from recent bank failures and many predictions of a recession this year, a recession may depend on the choices the Fed makes.

While much of the Fed’s tightening has yet to be addressed by the economy, if the central bank continues to ramp up pressure, the chance of a recession increases.

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The chances will also increase if bank failures, like those that brought down Silicon Valley Bank and Signature Bank earlier this year, continue to occur. And a debt ceiling showdown in Congress that threatens a US default later this year will increase the chances of widespread economic turmoil.

There is always the risk of rising inflation expectations. But there are other risks we face. We learned last month that interest rate risks are real. Recession risks are too. “The speed of Fed increases is a determining factor in both risks,” Claudia Sam, former director of research at the Federal Reserve and founder of Sahm Consulting, wrote in an analysis Thursday.

I have urged the Fed to “stop it”.

Siham, who has a rule in economics named after her about the possibility of a recession, said in an interview with The Hill that the US economy is not currently in a recession.

“That was a good report,” she said. “We need to be careful, because as we’ve seen in the past, once a recession starts, it really does.”