WASHINGTON — American employers added a solid 236,000 jobs in March, showing that the economy remains on a strong footing even though the Federal Reserve has enacted nine interest rate hikes over the past year in its bid to tame inflation.
The jobless rate fell to 3.5%, just above the 53-year low of 3.4% set in January.
At the same time, some details of Friday's report from the Labor Department raise the possibility that inflationary pressures will ease and the Fed will decide soon to stop raising interest rates. Average hourly wages in March were up 4.2% from the previous 12 months, down sharply from February's 4.6% year-on-year increase. However, measured month-over-month, wages rose 0.3% from February to March, up from a modest 0.2% gain from January to February.
Another likely reassuring sign of the Fed's inflation fighters, 480,000 Americans started looking for jobs in March. Typically, the greater the supply of job seekers, the less pressure employers feel to increase wages. The result is often an easing of inflationary pressures.
In its report Friday, the government also revised its estimates for job growth in January and February by a combined 17,000.
“The labor market continues to weaken,” said Sinem Buber, economist at labor firm ZipRecruiter. “”That will reduce inflationary pressures in the coming months and give the Federal Reserve more confidence regarding the inflation outlook.”
Among the economic sectors that gained jobs in March were restaurants and bars, healthcare providers and government agencies.
Despite last month's healthy job growth, recent economic signs suggest the economy may be slowing, which should help cushion inflationary pressures. Manufacturing is weak. America's trade with the rest of the world declined. And while restaurants, retailers, and other service companies are still growing, they are doing so at a slower pace.
For Fed officials, taming inflation is Job First. They were slow to respond after consumer prices started surging in the spring of 2021, concluding that they were only a temporary consequence of a supply bottleneck caused by an economic boom that surprisingly bounced off the pandemic recession.
It wasn't until March 2022 that the Fed started raising its benchmark interest rate from near zero. However, in the past year, he has raised interest rates more aggressively than since the 1980s to attack the worst inflation fight since then.
And as borrowing costs rise, inflation continues to fall. The latest year-on-year consumer inflation rate – 6% – is far below the 9.1% rate reached last June. But that's still well above the Fed's 2% target.
Complicating matters is the turmoil in the financial system. Two of America's major banks went bankrupt in March, and higher interest rates and tighter credit conditions could further destabilize banks and put pressure on consumer and business lending and spending.
The Fed aims to achieve what it calls a soft landing – slowing growth enough to tame inflation without causing the world's largest economy to fall 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 higher 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 2022. But recent data suggests 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 that growth in services, which account for a large part of the US workforce, had slowed sharply last month.
On Wednesday, the Commerce Department reported that US exports and imports fell in February in another sign that the global economy is weakening.
The Labor Department on Thursday said it had adjusted how it calculates how many Americans file for unemployment benefits. The tweak added nearly 100,000 claims to its numbers over the past two weeks and perhaps explains why the tech industry's massive layoffs this year haven't yet appeared on the jobless list.
The Labor Department also reported this week that employers posted 9.9 million job openings in February, the fewest since May 2021 but still significantly higher than seen before 2021.
In its bid to strike a soft landing, the Fed has expressed hope that employers will ease wage pressures by advertising fewer vacancies than by cutting jobs. The Fed also hopes that more Americans will start looking for work, thereby increasing the supply of labor and reducing pressure on employers to raise wages.