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The US labor market is showing signs of softening as rising interest rates and slowing economic growth are starting to impact employment.
Employers added 236,000 jobs in March, according to the Report from the Ministry of Labor Friday. This is down from the 326,000 jobs added in the previous month.
The unemployment rate fell to 3.5% in March, from 3.6% in February, even as 480,000 new people joined the workforce.
“The jobs market turned sluggish in March,” said Nella Richardson, chief economist at payroll processing firm ADP.
Despite the slowdown, employers are still adding workers faster than they did in 2019 — the year before the pandemic — when monthly job growth was 163,000.
Leisure and hospitality were once again some of the fastest growing sectors in March, with 72,000 new jobs, including 50,000 in bars and restaurants. By contrast, retailers cut 15,000 jobs. Construction companies and factories also saw a slight decline in employment.
“It’s uncomfortable when we see the labor market weaken, but given how troubling inflation has been over the past two years, some labor market easing is necessary,” said Sarah House, chief economist at Wells Fargo.
The Federal Reserve has been aggressively raising interest rates in an effort to curb inflation. The Fed is particularly concerned about rising prices for services, which has been largely driven by higher wages.
Average wages in March were 4.2% higher than they were a year ago, compared to an annual increase of 4.6% in February.
“From the Fed’s standpoint, I think a softer labor market is welcome, if a controlled slowdown,” House said. “They don’t want to see the labor market freeze up really quickly and start to see huge job losses. But they do want to see a slowdown in hiring, more workers returning to the labor market, which reduces that inflationary pressure.”
Employment is expected to slow further in the coming months, as banks become more cautious about extending credit following the failure of two large banks last month.