U.S. hiring moderates, unemployment falls in mixed signal for Fed

U.S. payrolls rose at a firm but more moderate pace last month as the unemployment rate fell, giving mixed signals to the Federal Reserve as it weighs a strong labor market against persistent inflation.

Nonfarm payrolls increased 236,000 – in line with forecasts – after an upwardly revised 326,000 advance in February, the Bureau of Labor Statistics said Friday.

The unemployment rate fell to 3.5% and average hourly earnings climbed 4.2% from a year ago, below forecast and the slowest since June 2021.

“The labor market is cooling down though not as quickly as the Fed would like it to,” said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics in Washington. “This keeps a May hike in play, though just barely.”

This is the last jobs report Fed officials will have in hand before their May 2-3 policy meeting, but they’ll get a few more readings on inflation and employment costs in the meantime.

Policymakers have stuck to their message that rates must go a bit higher and stay there all year to combat inflation despite recent stress in the banking sector.

Average hourly earnings on a monthly basis rose at a comfortable pace of 0.3%.

Fed officials have paid special attention to compensation metrics as strong pay gains have given Americans the ability to keep spending, exerting upward pressure on prices.

The figures suggest that supply and demand of workers are coming more into balance, which, if sustained, could help moderate wage gains further.

Many companies – particularly small businesses and those in the service sector – are still struggling to attract and retain workers due to persistent labor shortages.

The labor force participation rate – the share of the population that is working or looking for work – ticked up to 62.6%, the highest in three years and reflecting improvement for men and those ages 55 and older.

There was good news for other groups, too.

• The unemployment rate for Black workers fell to a record low as participation rose.
• The gap between the jobless rate for Black and white workers compressed to the narrowest in data back to the 1970s.
• Participation plunged among workers with less than a high school diploma, while it rose for those with at least a bachelor’s degree.
• The employment-to- population ratio – the share of the population that is working – for workers ages 25 to 54 climbed to 80.7%, the highest since 2001.

Hiring was concentrated in a handful of sectors like leisure and hospitality as well as health care, which have been struggling with acute labor shortages.

That said, others are hitting the brakes on hiring in response to weaker demand.

The report showed employers shed jobs in retail trade and temporary help services. Additionally, the number of permanent job losers jumped by the most since 2020.

Layoffs that initially started in sectors including technology and banking – which went on hiring sprees during the pandemic – are now beginning to spread to other industries.

General Motors cut 5,000 jobs through voluntary deals this week, while Walmart is reducing warehouse staffing across the country.

U.S. stock futures, Treasury yields and the dollar all rose on thin trading in the minutes following the data. Market moves tend to be more volatile on holidays, and today is Good Friday in the U.S.

The details of the report suggest the labor market is cooling at the margins.

The average workweek declined to 34.4 hours, matching the lowest since April 2020.

That’s potentially worrisome because employers tend to cut hours before staff when demand wanes.

Temporary jobs – also a leading indicator of the job market because they’re the first to be added when demand is picking up and the easiest to cut when growth is slackening – dropped.

A separate index of demand for temporary and contract workers has ebbed in seven of the last eight weeks.

Other data this week also pointed to lower demand for workers.

Job openings in February dropped below 10 million for the first time in almost two years.

Revisions to unemployment applications data boosted the figures to a level that’s more aligned with recent layoffs.