The US labor market is rapidly tightening; The unemployment rate falls to 3.6%

  • Nonfarm payrolls increase 431,000 in March
  • February payroll gain revised to 750,000 from 678,000
  • Unemployment rate falls to 3.6% from 3.8%
  • Average earnings per hour increase 0.4%; 5.6% year-on-year
  • Employment in some sectors is already above pre-pandemic levels

WASHINGTON, April 1 (Reuters) – U.S. job growth continued at a brisk pace in March, with the jobless rate falling to a new two-year low of 3.6% and wages reaccelerating, positioning the Federal Reserve to raise interest rates by a hefty 50 basis points in May.

Friday’s closely watched Labor Department employment report also showed employment in the professional and business services, financial activities and retail sectors was now above pre-pandemic levels. He underscored solid momentum in the economy as it faces headwinds from inflation, tighter monetary policy and Russia’s war on Ukraine, which is further straining global supply chains and increasing price pressures.

Last month, the Fed raised its policy rate by 25 basis points, the first hike in more than three years. Policymakers have been ramping up their aggressive rhetoric, with Fed Chairman Jerome Powell saying the US central bank needs to move “quickly” to raise rates and possibly “more aggressively” to prevent the high inflation takes hold.

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“The Fed is focused on the unemployment rate,” said Chris Low, chief economist at FHN Financial in New York. “Get ready for more aggressive tightening rhetoric.”

The survey of establishments showed that nonfarm payrolls increased by 431,000 jobs last month. February data was revised up to show 750,000 jobs added instead of the 678,000 previously reported. Overall employment is now 1.6 million jobs below its pre-pandemic level.

Economists polled by Reuters had forecast payrolls to rise by 490,000. Estimates ranged from a low of 200,000 to a high of 700,000.

Hiring demand is being driven by a sharp decline in COVID-19 infections, which has resulted in restrictions being lifted across the country. There is still no sign that the war between Russia and Ukraine, which has pushed gasoline prices above $4 a gallon, has affected the labor market.

The large increase in payrolls was led by the leisure and hospitality industry, which added 112,000 jobs. Professional and business services payrolls increased by 102,000 jobs. Employment in the sector is now 723,000 more jobs than before the pandemic. Retailers added 49,000, raising the employment level 278,000 more than in February 2020.

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Employment in financial activities grew by 16,000 and is now 41,000 above its pre-pandemic level. Manufacturing payrolls increased by 38,000 jobs and has yet to recover all the jobs lost during the pandemic. Construction employment is now back to its pre-pandemic level, with 19,000 jobs added in March.

With nearly a record 11.3 million job openings on the last day of February, payroll growth is likely to remain strong this year. The workforce continued to increase steadily in March.

The household survey, from which the unemployment rate is derived, showed that 418,000 entered the labor force last month. That was more than offset by a 736,000 increase in domestic employment. As a result, the unemployment rate fell two tenths to 3.6%, the lowest since February 2020.

The labor force participation rate, or the share of working-age Americans who have or are looking for work, rose to 62.4% from 62.3% in February.

With workers still in short supply, average hourly earnings rose 0.4% after rising 0.1% in February. That brought the annual increase to 5.6% from 5.2% in February.

The jobs report further allayed financial market fears of a recession following slight inversions of the widely followed two-year/10-year US Treasury yield curve this week.

Economists said the Fed’s massive holdings of Treasuries and mortgage-backed securities made it difficult to get a clear signal of yield curve moves. Some noted that real yields remained negative, while others argued that the two-year and five-year Treasury yield curve was a better indicator of a future recession. This segment has not been reversed.

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Information from Lucía Mutikani; Edited by Chizu Nomiyama and Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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