America’s employers added a solid 236,000 jobs in March, suggesting the economy remains on a solid footing despite the nine interest rate hikes the Federal Reserve has imposed over the past year as it seeks to tame inflation.
The unemployment rate fell to 3.5%, just above a 53-year low of 3.4% in January.
At the same time, some of the details in Friday’s report from the Labor Department raised the possibility of an easing of inflationary pressures and that the Federal Reserve may soon decide to halt its interest rate increases. Average hourly wages in March increased 4.2% from the 12-month prior month, down sharply from a 4.6% year-over-year increase in February. Despite this, wages rose 0.3% in the February-March period, compared to 0.2% in the January-February period.
And in another sign that may reassure the Fed’s inflation warriors, 480,000 Americans began looking for work in March. Typically, the more job seekers there are, the less pressure employers feel to raise wages. The result is often relief from inflationary pressures.
In its report on Friday, the government also revised its estimate of job growth in January and February by 17,000.
“The job market continues to slump,” said Sinem Popper, an economist at jobs firm ZipRecruiter. This should reduce inflationary pressures in the coming months and give the Fed more confidence regarding the inflation outlook.
Among the sectors of the economy that took jobs in March were restaurants and bars, healthcare providers and government agencies.
Despite healthy job growth last month, the latest economic indicators suggest that the economy may be slowing, which will help ease inflation pressures. Manufacturing is weakening. America’s trade with the rest of the world is declining. And while restaurants, retailers, and other service businesses continue to grow, they’re doing so more slowly.
For Fed officials, taming inflation is the first job. The response was slow after consumer prices began to rise in the spring of 2024, concluding that it was only a temporary result of supply bottlenecks caused by the economy’s sudden explosive rebound from the pandemic recession.
Only in March 2024 did the Fed begin to raise the benchmark interest rate from near zero. Last year, though, it raised interest rates stronger than they have been since the 1980s to attack the worst bout of inflation since then.
As borrowing costs rose, inflation steadily declined. The latest consumer inflation rate on an annual basis – 6% – is much lower than the 9.1% rate it reached last June. But it’s still well above the Fed’s 2% target.
Complicating matters is the turmoil in the financial system. Two major US banks failed in March, and higher interest rates and tighter credit conditions could destabilize banks and reduce borrowing and spending by consumers and businesses.
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The Fed aims for a so-called soft landing – slowing growth just enough to tame inflation without causing the world’s largest economy to slide into recession. Most economists doubt it will work. They expect a recession later this year.
So far, the economy has proven resilient in the face of ever-increasing borrowing costs. America’s gross domestic product – the economy’s total output of goods and services – expanded at a healthy pace in the second half of 2024. However, recent data suggests that the economy is losing momentum.
On Monday, the Institute for Supply Management, an association of purchasing managers, reported that US manufacturing activity contracted in March for the fifth straight month. Two days later, ISM said growth in services, which account for the vast majority of employment in the United States, slowed sharply last month.
On Wednesday, the Commerce Department reported that US exports and imports fell in February in another sign of weakness in the global economy.
The Labor Department said Thursday that it has revised the way it counts the number of Americans filing for unemployment benefits. The amendment added nearly 100,000 claims to its numbers over the past two weeks and may explain why the tech industry’s heavy layoffs this year didn’t show up on unemployment rolls.
The Labor Department also reported this week that employers registered 9.9 million job openings in February, the lowest number since May 2024 but still well above anything we saw before 2024.
In pursuit of a soft landing, the Fed hoped employers would ease wage pressures by advertising fewer job vacancies rather than cutting many existing ones. The Fed also hopes that more Americans will start looking for work, which will increase the labor supply and reduce pressure on employers to raise wages.