WASHINGTON, April 7 (Portal) – The US economy continued to produce jobs at a fast pace in March, pushing the unemployment rate down to 3.5%, signs of continued tightness in the job market that could prompt the US Federal Reserve to hike interest rates increases again next month.
Nonfarm payrolls rose 236,000 jobs last month, the Labor Department said in its closely-watched jobs report on Friday. Data for February has been revised upwards to show 326,000 jobs were added instead of 311,000 as previously reported.
Part of the slowdown in settings reflected the fading boost from unseasonably mild weather in January and February.
Economists polled by Portal had forecast an increase in the number of employees by 239,000. Estimates ranged from 150,000 to 342,000. The economy needs to create about 100,000 jobs per month to keep up with the growth in the working-age population.
As with recent economic data, it was too early for the financial market stress triggered by the collapse of two regional banks in March to show up in the jobs report.
The unemployment rate fell to 3.5% from 3.6% in February. Average hourly earnings rose 0.3% in March after rising 0.2% in February. This pushed annual wage growth down to 4.2% from 4.6% in February, which was still too high to be compatible with the Fed’s 2% inflation target. Fed officials will now wait for inflation data later this month to gauge the impact of their year-long monetary tightening campaign.
According to CME Group’s FedWatch tool, financial markets were leaning towards the US Federal Reserve to hike rates by another 25 basis points at the May 2-3 monetary policy meeting.
The Fed raised its benchmark overnight interest rate by a quarter of a percentage point last month, but indicated it was about to pause further rate hikes to highlight the stress in financial markets. It has raised its policy rate by 475 basis points since last March from near zero to the current 4.75%-5.00% range.
But the job market is losing its shine. The Labor Department’s annual revisions to weekly claims reports and rolling claims data, released Thursday, showed significant improvements in both series.
Surveys from the Institute for Supply Management offered a bearish view of the job market this week. Job vacancies fell below 10 million in late February for the first time in almost two years, although there were 1.7 job vacancies for every unemployed person that month, government data showed.
The labor market is likely to relax significantly from the second quarter as companies react more strongly to the weakening of demand caused by higher borrowing costs.
Credit conditions have also tightened, which could make access to finance more difficult for small businesses and households. Small businesses like restaurants and bars have been the main drivers of job growth since the recovery from the pandemic.
Some economists are predicting that the payrolls will turn negative in the second half of the year, a development they say would force the Fed to cut interest rates to prevent the economy from sliding into a deep recession. Fed Chair Jerome Powell has spoken out against this assumption.
Economists forecasting a rate cut this year argue that parts of the economy, such as housing, are already in recession, while tighter bank lending standards mean the economy will be tighter on lending.
They also noted that business sentiment was at recessionary levels while consumer confidence remained lackluster.
Reporting by Lucia Mutikani; Edited by Paul Simao and Chizu Nomiyama
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