US job growth blew past expectations in March and wages increased at a steady clip, suggesting the economy ended the first quarter on solid ground and potentially delaying anticipated Federal Reserve interest rate cuts this year.
The Labour Department’s closely watched employment report also showed the unemployment rate fell to 3.8 per cent last month from 3.9pc in February. The decline in the jobless rate reflected a sharp rebound in household employment, which more than absorbed the 469,000 people who joined the labour force.
The unemployment rate has remained below 4pc for 26 straight months, the longest such stretch since the late 1960s. The US economy is outshining its global peers even though the Fed has raised rates by 525 basis points since March 2022 to dampen inflation. The labour market is benefiting from a rise in immigration over the past year.
Though the strong hiring did not alter expectations that the US central bank would start easing rates this year given increased labour supply, financial markets are doubtful of the three cuts envisaged by policymakers.
Nonfarm payrolls increased by 303,000 jobs last month, the Labour Department’s Bureau of Labour Statistics said. The economy added 22,000 more jobs than previously estimated in January and February. Economists had forecast 200,000 new jobs in March, with estimates ranging from 150,000 to 250,000.
Job gains in the first quarter averaged 276,000 per month compared to the October-December quarter’s average of 212,000.
Economists say most businesses locked in lower borrowing costs prior to the US central bank’s tightening cycle, providing some insulation from higher borrowing costs and allowing them to keep their workers.
Industries sensitive to interest rates, like construction, are also boosting hiring as financial conditions ease.
About 59.4pc of industries added jobs last month, further easing worries that employment was concentrated in too few sectors. The healthcare sector led the broad increase in employment, adding 72,000 jobs that were spread across ambulatory services, hospitals as well as nursing and residential care facilities.
Government payrolls increased by 71,000 jobs, boosted by local and federal government hiring.
The construction sector added 39,000 jobs, about double the average monthly gain of 19,000 over the last 12 months.
Leisure and hospitality payrolls rose 49,000, returning employment to its pre-pandemic level. There were also increases in employment in the social assistance, retail and wholesale trade sectors.
Financial activities reported modest gains in payrolls as did mining and logging, transportation and warehousing.
Professional and business services employment rose slightly, with temporary help – seen a as harbinger for future hiring – posting a small decline. But manufacturing added no jobs last month as did the information sector. Utilities shed 400 jobs.
Average hourly earnings rose 0.3pc in March after gaining 0.2pc in the prior month as some weather-related distortions faded. Wages increased 4.1pc on a year-on-year basis, the smallest gain since June 2021, after advancing 4.3pc in February.
Wage growth in a 3pc-3.5pc range is seen as consistent with the Fed’s 2pc inflation target.
Inflation data next week will be crucial in determining the timing of the first rate cut. The Fed has kept its policy rate at the current 5.25pc-5.50pc range since last July. Following the report, financial markets saw two rate cuts this year, according to LSEG data.
The average workweek rebounded to 34.4 hours last month, from 34.3 hours in February. That together with the strong payrolls boosted aggregate hours worked 0.5pc, consistent with expectations for solid economic growth in the first quarter.
Gross domestic product growth forecasts for the January-March quarter are as high as 2.5pc annualised rate. The economy grew at a 3.4pc pace in the fourth quarter.
The strong job gains seen in the establishment survey last month were mirrored in the smaller and volatile household survey, from which the jobless rate is derived. Household employment rebounded by 498,000 jobs after declining for three straight month.
The two surveys had diverged sharply in recent months. Economists attributed the divergence to an increase in labour supply through immigration that was not yet being captured in the household survey.
The Congressional Budget Office recently upgraded its immigration estimate for 2023 to 3.3 million from 1m.
The BLS uses US Census population estimates and will likely update the population flows in its annual benchmark revision next year.
Researchers at the Brookings Institution in Washington estimated the new CBO projections suggested the labour market in 2023 could accommodate employment growth of 160,000 to 230,000 per month, compared to previous projections of 60,000 to 130,000, without adding pressure to wages and price inflation.
The labour force participation rate, or the proportion of working-age Americans who have a job or are looking for one, rose to a four-month high of 62.7pc from 62.5pc in February.
The employment-to-population ratio, viewed as a measure of an economy’s ability to create employment, also climbed to a four-month high of 60.3pc from 60.1pc in February.