The US posted strong job growth in March as higher wages drew more workers into the workforce, giving the Federal Reserve another data point supporting more aggressive monetary policy to rein in inflation. inflation.
Employers in the world’s largest economy added 431,000 jobs last month, according to the Bureau of Labor Statistics, a slower pace than the upwardly revised 750,000 jobs created in February and less than the Bloomberg consensus forecast of 490,000. jobs, but still a substantial increase in a tight job market.
For the first quarter of 2022, job growth averaged 562,000 per month, in line with 2021. The unemployment rate slumped to 3.6 percent, a 0.2 percentage point drop from February and the lowest level since before the pandemic.
In addition to the March gain, January and February payrolls were revised up by a combined 95,000, further cementing the view that the US economy is headed for a full recovery from the pandemic, said Bill Adams, chief economist at Comerica Bank.
Following the latest release, a sell-off of short-term US government debt accelerated, extending losses that culminated in the worst quarter on record for Treasuries. It came as expectations have grown that the Fed will need to speed up the rate at which it is reducing its economic support.
The yield on the two-year US Treasury note, which is sensitive to monetary policy expectations, rose about 0.1 percentage point to 2.44 percent.
The drop in the jobless rate “was larger than expected and widespread among groups that have historically lagged behind in economic recovery,” Adams continued, but added that it “increases the urgency” for the central bank to tighten policy.
“This jobs report solidifies the case for a 50 basis point rate hike by the Fed at its next meeting,” he said, double his typical pace of a quarter percentage point.
On Friday, US President Joe Biden said fewer jobless Americans meant more families had more “room to breathe,” but acknowledged that inflation, running at its fastest pace in 40 years, remains too high.
“Even though we created a record number of jobs, I know this job is not done,” Biden said. “We need to do more to control prices.”
He noted that gasoline and food prices have risen following the Russian invasion of Ukraine, noting his administration’s move this week to order a “historic release” of some 180 million barrels of oil from emergency reserves. from the US in an attempt to cool crude prices.
Data released on Friday also showed a rebound in monthly wage growth after a surprising slowdown in February.
Median hourly earnings posted a 0.4% monthly increase, which translated to a 5.6% increase over the same period last year, as companies continued to compete for talent and scramble to fill a near-record number of job vacancies. For every unemployed person, there are approximately 1.7 vacancies.
At these high levels, the risk to wage growth is now tilted to the downside, said Michael Pearce, senior US economist at Capital Economics.
“Those strong gains mean wage growth will fall from here, with survey evidence on wage growth and broader measures of slack, such as job openings and resignations, suggesting that labor market shortages and wage pressures have leveled off,” he said.
On the contrary, this could lead to weaker core inflation and take pressure off the Fed to hike rates aggressively, he added.
As wages have risen and concerns about the Covid-19 pandemic have subsided, the share of Americans who are employed or looking for work has risen but remains below pre-pandemic levels.
The deficit narrowed marginally in March, with the labor force participation rate rising 0.1 percentage point to 62.4 percent. In February 2020, it stood at 63.4 percent.
The BLS said the gains were “remarkable” in the leisure and hospitality sector, with 112,000 jobs added, as well as for retail and manufacturing companies, which added a combined 87,000 jobs. Employment in professional and business services increased by 102,000.
“This pace of job creation would not be sustainable for a few more months with the amount of slack we expect,” Jeremy Schwartz, senior US economist at Credit Suisse, said of the aggregate monthly figure. He forecasts that around 1 million more workers will still return to the workforce, pushing the unemployment rate down even more.
The employment data was collected as Russia’s war in Ukraine escalated sharply, causing oil and other commodity prices to surge. Despite increased uncertainty and skyrocketing costs, the US labor market remains extremely tight by historical standards.
At a press conference in mid-March, following the first interest rate hike since 2018, Fed Chairman Jay Powell warned that the labor market was “adjusted to an unhealthy level” and expressed concern about the possible transmission of higher wages to price pressures.
In the face of persistent inflation, the US central bank has signaled its plans to steadily tighten monetary policy after two years of highly stimulative scenarios.
Officials have expressed a clear willingness to raise the pace even further and achieve at least a half-point rate increase this year, something they haven’t done since May 2000.
Most policymakers expect rates to approach 2 percent by the end of the year from the current range of 0.25 percent to 0.50 percent, based on the latest projections, eventually rising to 2.8 percent. percent in 2023. That’s above the median estimate. of the “neutral” rate and suggests a policy stance that begins to restrict economic activity.
Despite tighter tightening, members of the Federal Open Market Committee and other bank branch presidents don’t think their efforts to rein in inflation will lead to a sharp rise in unemployment or trigger a recession.
The bond market has been showing a possible warning sign for the US economy after the inversion this week of a closely watched part of the yield curve, which tracks the difference between Treasury yields at two and ten years.
“It’s not the biggest deal in the world if they go 25 versus 50 bps,” said Holly MacDonald, chief investment officer at Bessemer Trust. “What is more important is whether they are going to cause a recession with their tightening cycle.”