The Labor Market Is Cooling As Employment Growth Slows Again in March

What happened: Total nonfarm payroll employment added 236,000 net jobs in March. The unemployment rate changed little at 3.5%. Annual growth in average hourly earnings fell to 4.2% in March from 4.6% in February. US employers added 236,000 net jobs this month after adding 326,000 in February and a 472,000 gain in January. 

What it means: March marked the smallest monthly employment increase in more than two years. The labor market is showing signs of cooling as hiring continues to slow.

What Zillow Senior Economist Orphe Divounguy thinks: Today’s jobs report is good news in the battle against inflation because the US economy is cooling without an uptick in the unemployment rate. The continued increase in labor force participation and employment supports home shopping activity. However, the labor market remains tight. For those waiting for the Fed to reverse course, a still-tight labor market means rate cuts are less likely before year’s end. The yield on 10-yr treasuries increased on the news, and mortgage rates that tend to follow them also edged higher.

Looking ahead, demand is cooling and that means employment and wage growth will continue to slow. February’s Job Openings and Labor Turnover Survey (JOLTS) showed a large decline in the number of job openings. A slowdown in hiring coupled with an increase in labor force participation will likely result in a less tight labor market and lower wage growth. And this will likely result in lower long term interest rates, including mortgage rates. Rent inflation tends to respond more to a tight labor market than do other components of the Consumer Price Index (CPI). Rent is 40% of core CPI. 

Consumer price growth in services is still a concern. High consumer demand and fewer workers resulted in labor shortages and rapid wage growth – especially in leisure and hospitality. The leisure and hospitality sector remains 368,000 jobs below its pre-pandemic level. Leisure and hospitality added 72,000 jobs in March, lower than the average monthly gain of 95,000 over the prior six months.

Numbers to know: 

  • In February, nonfarm employment increased by 236,000 jobs. Annual employment growth slowed to 2.7% from 2.9% last month.
  • The unemployment rate remained steady at 3.5%
  • Despite adding 72,000 net jobs in February, employment growth in leisure and hospitality is slowing, falling below its prior 6 month monthly gain of 95,000 jobs. However wage growth in the sector remains high, up 6.1% from a year ago – a sign of persistent labor shortages.
  • Construction employment changed little over the month.
  • Average hourly earnings increased 0.27% in March. Annual growth in hourly earnings is up 4.2% year over year, down from 4.6% in February.



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