Kiplinger Jobs Outlook: Strong Gains Will Ease in Time

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March employment grew by a robust 303,000, following a gain of 270,000 new jobs in February. The March report was almost a mirror image of February’s: Healthcare, food service, retail and local governments continued to add jobs at a decent clip. Wholesale employment also rose this time. Goods-sector job gains were positive, boosted by an uptick in construction and motor vehicle manufacturing. The unemployment rate eased slightly to 3.8% on the hiring surge. Fewer people outside the labor force started looking for work, meaning they are not counted as unemployed by government statisticians and thus don’t raise the official unemployment number.

Recent strong immigration may be helping growth in the labor supply, which has continued to rise at a rate faster than overall population growth even after recovery from the pandemic was complete. The number of foreign-born workers and the total labor force both increased notably in March. Immigrants could be accounting for a lot of the rise in part-time employment, especially in the unskilled food service and retail sectors.

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A note of caution: In the separate government survey of households, part-time employment has jumped, but full-time employment has declined for four consecutive months. The smaller household survey frequently diverges for a time from the business payroll survey that provides the headline unemployment rate, before synching up again, so the divergence may not be important. But it bears watching, in case the business survey starts to show weakness, too.

Annual wage growth slowed to 4.1% in March. Pay rises should be dropping below 4.0% in the next couple of months, and will end the year at about 3.5%. Wages of nonsupervisory employees are growing slightly faster, at 4.2%, but should also slow to about 3.5% by the end of the year.

March’s and February’s strong jobs reports won’t prevent the Federal Reserve from cutting interest rates this year, but they should push that move back to June or July. The Fed will be heartened by the easing trend in wage growth, which would put less pressure on businesses to raise prices. The Fed will be looking for a gradual slowing of both job creation and wage gains in the next few months, which would allow it to make a rate cut in June. If those trends don’t materialize, then rate cuts could be delayed to July.  

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