March data shows decline in hiring, growth likely ‘too high’ for Fed

The March jobs report due on Friday is set to show another slowdown in the US labor market, although hiring is likely to remain robust even as the Federal Reserve continues to raise interest rates in an attempt to slow the economy.

Wall Street economists expect nonfarm payrolls to have risen by 239,000 last month and the unemployment rate is set to hold steady at 3.6%, according to Bloomberg data.

In February, the economy added 311,000 new jobs, while the unemployment rate rose to 3.6% due to an increase in participation. Friday’s jobs report will be released at 8:30 a.m. ET. Financial markets in the US will be closed on Friday, but on Good Friday.

Investors will also be keeping a close eye on wage growth, with average hourly earnings expected to increase 0.3% over the month and 4.3% from last year. In February, wages rose 0.2% compared to the previous month and 4.4% compared to the same month last year.

February̵[ads1]7;s jobs report served as a solid enough signal for the Fed to proceed with a planned rate hike on March 22. Those numbers fell just hours before Silicon Valley Bank was seized by regulators, but Signature Bank was also shut down by regulators two days later on Sunday, March 10.

However, noticeable effects from the banking crisis are not expected to appear in Friday’s report.

“The March report comes too early to capture much of the impact of recent banking sector woes, with the problems at SVB not peaking until the end of the survey period,” wrote Andrew Hunter, US deputy director at Oxford Economics. in a memo last week.

Instead, most on Wall Street will be looking to see if this report argues for another 0.25% Fed rate hike next month. Data from the CME Group on Thursday afternoon showed that markets were pricing in a 50-50 chance that the Fed will either choose to keep interest rates at current levels or increase the target range of its benchmark interest rate by another 0.25%.

March data shows decline in hiring, growth likely ‘too high’ for Fed

US Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC, the United States, March 22, 2023. (Photo: Liu Jie/Xinhua via Getty Images)

Ian Shepherdson, chief economist at Pantheon Macroeconomics, expects nonfarm payrolls to have increased by 250,000 last month, writing in a note to clients Thursday that this number would be “too high for the Fed.”

“FOMC members continue to worry that such rapid job growth will push unemployment to new lows and/or prevent wage growth from slowing to a pace consistent with the inflation target,” Shepherdson added.

At a press conference last month, Federal Reserve Chairman Jerome Powell called the labor market “very tight” as the average monthly job gain in the six months to February was 343,000.

However, Friday’s report comes after data on initial jobless claims on Thursday and private payrolls data from ADP out Wednesday suggested the labor market is cooling.

Initial claims are seen as the best real-time indicator of labor market stress; this measure has shown some signs of increasing in recent months, with claims totaling 228,000 last week. ADP’s report out Wednesday morning showed that 145,000 jobs were added to the private sector last month, below expectations.

“Our March payrolls data is one of several signals that the economy is slowing,” said Nela Richardson, chief economist at ADP in a press release. “Employers are pulling back from a year of strong hiring and wage growth, after a three-month plateau, is on the way down.”

Earlier this week, unemployment data for February also showed that open roles in the economy continue to fall, another potential signal that the labor market is slowing. February was the first time since June 2021 that there were fewer than 10 million open jobs at the end of the month.

Still, some economists were quick to note that while job vacancies are on the decline, overall demand for employment remains well above pre-pandemic levels.

“Opens remain markedly above the peaks of previous cycles,” Wells Fargo economists wrote in a note to clients after Tuesday’s JOLTS report.

“At the same time, and despite the steady drumbeat of layoff announcements in recent months, businesses still seem quite keen to hold on to workers. The layoff and discharge rate fell back to 1% in February, compared to an average of 1.2% in 2018 -2019.”

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