The March jobs report was in line with consensus expectations, confirming that job gains are strong, but slowing. The economy added 236,000 non-farm payroll jobs in March compared to an expected 230,000. The unemployment rate improved to 3.5% after briefly rising to 3.6% the previous month. These figures provide few surprises and allow the Federal Reserve (Fed) to proceed with their current path of policy. Still, higher-than-average inflation will likely require further monetary tightening despite the market’s expectation that the Fed may cut rates later this year. Note that markets were closed Friday for the Good Friday holiday.

Unemployment rates
U3 unemployment and U6 under-employment rate, since 1994

Unemployment and under-employment percentage with averages 1960-Present

Source: Clearnomics, Bureau of Labor Statistics, Principal Asset Management. Data as of April 7, 2023.

  • Total non-farm payrolls climbed by 236,000 and private payrolls increased 189,000. These figures are down from February’s upwardly-revised 326,000 total and 266,000 private payrolls, highlighting the slowly decelerating trend in the job market.
  • Jobs were added across many industries with few surprises. Leisure and hospitality continued to make gains with 72,000 jobs and professional and business services added 39,000. Meanwhile, manufacturing payrolls decreased by 1,000 jobs, construction by 9,000, and retail trade by about 15,000. The information sector clawed back some of its 33,000 total losses during the first two months of the year with a gain of 6,000 in March, despite reports of ongoing layoffs in the tech sector.
  • Slowdowns in these sectors are consistent with the separate JOLTS report which showed that the number of job openings fell below 10 million for the first time in almost two years. At the same time, the labor force participation rate improved slightly from 62.5% to 62.6%. Average hourly earnings grew 4.2% on a year-over-year basis, a trend that continues to be positive even if it lags behind inflation.

While today’s report was indeed in line with expectations, the overall resilience of the job market continues to defy what many economists had expected, and perhaps what the Fed had hoped for, after one of the fastest tightening cycles in history. Unemployment back at 3.5% is well below the Fed’s year-end projection of 4.5% and 4.0% in the long run, based on its March Summary of Economic Projections.

March’s unemployment numbers only serve to bolster the case for further monetary tightening. While that tightening doesn’t necessarily have to come from Fed rate hikes, and instead, could come from credit conditions as banks tighten lending standards, the bigger picture is clear: Financial conditions will likely tighten further, and recession risks are still looming.


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