The March employment report from the Labor Department revealed that U.S. employers hired more workers than anticipated, indicating a strong end to the first quarter and potentially delaying expected Federal Reserve interest rate cuts.
Notably, the unemployment rate decreased to 3.8% from 3.9% in February, reflecting a significant increase in household employment that absorbed new labor force entrants.
Despite the Fed’s series of rate hikes since March 2022 to address inflation concerns, the U.S. economy remains robust compared to global counterparts. Many businesses secured lower borrowing costs before the Fed’s tightening measures, helping to cushion the impact of higher rates and maintain employment levels. Additionally, increased immigration over the past year has contributed to the strength of the labor market.
Eric Merlis, managing director at Citizens Bank, noted that the data does not heighten the need for Fed rate cuts, suggesting that the economy has adapted to higher rates and indicating stability moving forward.
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Nonfarm payrolls increased by 303,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said. The economy added 22,000 more jobs than previously estimated in January and February. Economists polled by Reuters had forecast 200,000 jobs in March, with estimates ranging from 150,000 to 250,000.
The nearly broad increase in employment last month was led by the healthcare sector, which added 72,000 jobs, spread across ambulatory services, hospitals as well as nursing and residential care facilities. Government payrolls increased by 71,000 jobs, boosted by local and federal government hiring.
The construction sector added 39,000 jobs, about double the average monthly gain of 19,000 over the last 12 months. Construction is among the sectors sensitive to interest rates that are benefiting from easing financial conditions.
Leisure and hospitality payrolls rose 49,000, returning employment to its pre-pandemic level. There were also increases in employment in the social assistance, retail and wholesale trade sectors. But manufacturing added no jobs last month.
Average hourly earnings rose 0.3% in March after gaining 0.2% in the prior month as some weather-related distortions faded. The annual increase in wages slowed to a still high 4.1% in March from 4.3% in February. Wage growth in a 3%-3.5% range is seen as consistent with the Fed’s 2% inflation target.
Inflation by most measures is running above that target. The average workweek rebounded to 34.4 hours last month, from 34.3 hours in February. Financial markets have dialed back their expectations of a June rate cut and now see a roughly 50% chance.
Fed Chair Jerome Powell reiterated on Wednesday that the central bank was in no rush to reduce borrowing costs after leaving its policy rate unchanged in the current 5.25%-5.50% range last month.
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