Job Creation Slows in March

U.S. employers added 236,000 new jobs in March, holding to expectations, and the unemployment rate dipped to 3.5 percent, owing to an increase in labor force participation, according to the latest employment report from the U.S. Bureau of Labor Statistics.

Monthly job creation was at its lowest since December 2020, evidence that the uber-resilient labor market is finally showing some signs of losing steam amid the Federal Reserve's efforts to cool inflation by raising interest rates.

After the historic levels of job creation that we saw over the last two years, and with concerns about a slowing economy, employers are now being more strategic about how and when they are adding new positions, said Richard Wahlquist, president and CEO of the American Staffing Association in Alexandria, Va.

"The labor market continued to show strength in March despite growing recession fears, with employment numbers inching up and unemployment numbers slightly edging down," said Geno Cutolo, head of Adecco North America. "It's still an employee-driven market, both based on what we're seeing at a macro level, as well as what we're seeing on the ground at Adecco," he said.

"After January and February surged past expectations, job gains came back down to Earth in March, possibly due to hiring being pulled forward earlier into the year due to milder winter weather," suggested Daniel Zhao, Glassdoor senior economist. "The labor market has been a pillar of strength for the expansion so far. As the Federal Reserve looks for evidence that the labor market is coming back into balance, today's report is a step in the right direction with moderating wage growth but ongoing job gains and rising labor force participation."

Nick Bunker, economic research director for North America at the Indeed Hiring Lab, added that "the hiring pace of last year is well behind us. But average payroll gains of 345,000 jobs in the past three months—more than triple the pace needed to keep up with population growth—is nothing to sneeze at."

Sinem Buber, lead economist at ZipRecruiter, noted that there are clear signs of a more broad-based slowdown in the report, with job gains becoming more narrowly concentrated in fewer industries, and a growing number of industries shedding jobs. "The slowdown in interest rate-sensitive industries is spilling over into the rest of the economy," she said.

Monster Economist Giacomo Santangelo said that because inflation is still well above the Fed's 2 percent target, rates will likely continue to rise. He added that the inflation fight, so far, has precipitated the failure of several banks. "On the topic of the bank failures, we should not be surprised to see unemployment increase in the banking and finance sector," he said.

Many economists generally still believe a recession is due later this year.

"As the number of job openings continues to fall, and more workers come off the sidelines, it is more important than ever for policymakers to shift their mindset away from continued interest rate hikes in the coming weeks that will raise unemployment levels and destroy jobs," Wahlquist said.

Hospitality Still Trying to Make Up Losses

Employment in leisure and hospitality led all sectors once again in March, but is still about 368,000 jobs below its pre-pandemic level.

"Leisure and hospitality once again saw the biggest gains in March, adding 72,000 new jobs as the industry prepares for summer travel," Cutolo said. Most of the job growth occurred in restaurants and bars, where employment rose by 50,000.

Government (47,000 new jobs), professional and business services (39,000) and health care (34,000) also posted solid increases. Retail saw a loss of 15,000 positions and construction employers cut 9,000 jobs.

"The three industries that contributed the most to job gains in March were health care services, leisure and hospitality, and the public sector, accounting for 72 percent of all net new jobs added," Buber said. "This is in line with what we see in online job postings data, which show that consumer-facing industries are still experiencing strong business activity. Industries that are more sensitive to interest rate hikes or that heavily depend on B2B services have experienced a significant slowdown. These industries, such as tech, financial services, construction, and temp help services also have a high share of small businesses."

Notably, technology companies continue to create jobs despite headlines of tech layoffs, adding 6,000 jobs in March.

"ManpowerGroup's real-time data shows that hiring demand is focused, with medical, IT and sales comprising 43 percent of job postings, and the most in-demand roles are registered nurses, software developers, drivers and retail sales workers," said Becky Frankiewicz, president and chief commercial officer of ManpowerGroup.

"There is a great reset occurring," she said. "Companies are hiring for specialist skills and in-demand roles that will shape the future. For example, roles managing automation are in demand—AI engineers, data engineers, data analysts and cybersecurity professionals. In addition, green jobs—particularly those focused on energy and transportation—are experiencing significant growth."

Labor Force Participation Increases

The unemployment rate remained near historic lows and labor force participation reached an important milestone in March. "The labor force participation rate for prime-age workers has reattained the peak seen in January 2020—83.1 percent of prime-age workers are either working or actively seeking employment," said Michael Farren, a senior research fellow at the Mercatus Center at George Mason University in Arlington, Va.

On the other hand, he said that many older workers have retired earlier than usual. "The labor force participation for those 55 and over is around 1.5 percentage points lower than before the pandemic—that translates to around 1.4 million fewer workers," he said.

"The combination of a quick hiring tempo and low unemployment has led to rising labor force participation and higher employment-to-population ratios," Bunker said. "The share of workers ages 25 to 54 with a job is at its highest level since May 2001. It may have taken longer than many expected, but we are now seeing that strong labor demand has been and is drawing more people into the labor market."

Wage Growth Cools

Average hourly earnings rose 4.2 percent year-over-year, the slowest pace since June 2021.

"It's a welcome sign for the Federal Reserve looking for signs of easing inflationary pressures in the labor market," Zhao said.

"Wages are now clearly decelerating, although it will be important to get confirmation of this trend in other data," Bunker said. "Average hourly earnings for all workers grew at a 3.2 percent annualized rate over the past three months, down from 4.9 percent in December, a stark slowdown that's more rapid than the trend in other data."

Buber pointed out that wages accelerated in leisure and hospitality, signaling that labor shortages are still lingering in that sector. "But given the labor force participation rate for noncollege degree holders—the biggest source of labor supply for the industry—went up from 56 percent in February to 56.3 percent in March, the wage growth is likely to soften in the coming months."