A now hiring sign is posted in Garnet Valley, Pa., on May 10, 2021.Matt Rourke/The Associated Press
U.S. employers maintained a brisk pace of hiring in March, driving the unemployment rate to a new two-year low of 3.6 per cent while also boosting wages, resulting in a further tightening of labour market conditions and opening the door to a hefty 50-basis-point interest-rate hike from the Federal Reserve in May.
The Labour Department’s closely watched employment report on Friday also showed more people joining the work force, likely attracted by the higher wages. Employment in professional and business services, financial activities and retail sectors is now above prepandemic levels.
The run of robust job gains underscored the economy’s resilience even as growth appears to have slowed considerably in the first quarter under the weight of high inflation.
“Despite concerns about inflation and the Russia-Ukraine war, American businesses are still hiring at full throttle, while more people are returning to the labour force,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
“That’s great news for the economy. However, the labour market is only getting tighter and wages are on a clear upward track, fanning the inflation flames. The Fed has every reason to go big or go home on May 4.”
The survey of establishments showed that non-farm payrolls increased by 431,000 jobs last month. The economy created 95,000 more jobs in January and February than initially estimated.
Overall employment is now 1.6 million jobs below its prepandemic level, with many economists predicting all the jobs lost will be recouped by July. Economists polled by Reuters had forecast payrolls increasing 490,000 in March. Estimates ranged from as low as 200,000 to as high as 700,000.
Hiring demand is being driven by a sharp decline in COVID-19 infections, which has resulted in restrictions being lifted across the United States. There is no sign yet that the Russia-Ukraine war, which has pushed gasoline prices above US$4 a gallon, has affected the labour market.
The broad increase in payrolls was led by the leisure and hospitality industry, which added 112,000 jobs. Professional and business services payrolls increased by 102,000 jobs. Employment in the sector is now 723,000 jobs higher than before the pandemic. Retailers added 49,000, lifting the level of employment 278,000 higher than in February, 2020.
Financial activities employment grew by 16,000 and is now 41,000 above its prepandemic level. Manufacturing payrolls increased by 38,000 jobs and are yet to recoup all the jobs lost during the pandemic. Construction employment is now back at its prepandemic level, with 19,000 jobs added in March.
Stocks on Wall Street were mixed. The U.S. dollar rose against a basket of currencies. U.S. Treasury yields rose, with the closely watched yield curve between two-year and 10-year notes inverting for the third time this week.
With a near record 11.3 million job openings on the last day of February, payrolls growth could remain strong this year.
Job gains averaged 562,000 per month in the first quarter, but gross domestic product growth estimates for the first three months of the year are mostly below a 1.0-per-cent annualized rate, a sharp slowdown from the fourth quarter’s brisk 6.9-per-cent pace. Annual inflation rose in February by the most in 40 years, reflecting snarled supply chains and expensive gasoline.
The Fed last month raised its policy interest rate by 25 basis points, the first hike in more than three years. Policy makers have been ratcheting up their hawkish rhetoric, with Fed chair Jerome Powell saying the U.S. central bank must move “expeditiously” to hike rates and possibly “more aggressively” to keep high inflation from becoming entrenched.
With growth slowing and the Russia-Ukraine war still raging, economists say the Fed faces a difficult balancing act.
“While today checks a box for the Fed, it is going to have to straddle a very taut tightrope of largely supply-shock-driven inflation with some clear dents in the economic engine today and going forward,” said Rick Rieder, BlackRock chief investment officer of global fixed income in New York.
The labour pool continued to steadily expand in March.
The household survey, from which the unemployment rate is derived, showed 418,000 entered the labour force last month. That was more than offset by a surge of 736,000 in household employment. As result, the unemployment rate dropped two-tenths of a percentage point to 3.6 per cent, the lowest since February, 2020.
Unemployment declined for all race groups, with a large decline among Blacks. The labour-force participation rate, or the proportion of working-age Americans who have a job or are looking for one, rose to a two-year high of 62.4 per cent from 62.3 per cent in February. The participation rate for the prime age group also rose to a two-year high of 82.5 per cent from 82.2 per cent in February.
According to a report from global outplacement firm Challenger, Gray & Christmas on Thursday, the skyrocketing cost of living was “causing workers who were depending on savings or investments to seek out paid employment.”
With workers still scarce, average hourly earnings increased 0.4 per cent after edging up 0.1 per cent in February. That lifted the annual increase to 5.6 per cent from 5.2 per cent in February. But the workweek shortened to 34.6 hours from 34.7 hours in February.
The employment report reinforced that the economy will continue to expand, despite recession signals from the bonds market.
Economists said the Fed’s massive holdings of Treasuries and mortgage-backed securities made it hard to get a clear signal from the yield curve moves. Some noted that real yields remained negative, while others argued that the two-year/five-year Treasury yield curve was a better indicator of a future recession. This segment has not inverted.
“The mild inversion of the yield curve from two years to 10 years is in fact a positive signal, since it reflects market confidence that the Fed is on the right track in terms of normalizing interest rates and taming the inflation lion in a complex global economic environment dominated mainly by supply side and war shocks,” said Brian Bethune, professor of practice at Boston College.
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