A bounce-back in hiring last month is likely to push the Federal Reserve to continue holding interest rates steady, focusing more on inflation and the impact of the oil price shock emanating from the Iran war.
The US economy added 178,000 jobs in March, beating expectations of 65,000. That’s a ricochet back from the newly downwardly revised 133,000 jobs lost in February and closer to the blockbuster 160,000 jobs created in January.
The unemployment rate edged down to 4.3% from 4.4% previously.
January and February figures together amount to a net of 30,000 jobs created, which is at the lower end of the range of new estimates of jobs needed to hold the unemployment rate steady.
The jobs report in February was tainted by winter storms and a labor strike in the healthcare sector, effects which were likely reflected in the bounce-back in March. That 178,000 jobs were created in March will be seen as a positive for the central bank.
“The larger-than-expected rebound in nonfarm payrolls in March mainly reflects a reversal of the strike and weather effects that weighed on hiring in February, rather than being a sign that the labor market is rapidly gaining momentum,” said Capital Economics chief North America economist Stephen Brown. “While higher oil prices should eventually support payrolls in the mining sector, the more immediate risk is that the hit to consumers’ purchasing power will weigh on demand and therefore hiring in the near term.”
Though the lion’s share of the jobs continued to stem from the healthcare sector, as has been seen over the past year, tainting the assessment of the health of the labor market for some Fed officials.
St Louis Fed president Alberto Musalem said this week ahead of the jobs report that he sees risks to the labor market, noting that job growth in the private sector over the past three months has been narrowly concentrated in just a few sectors, and that growth has been at the low end of estimates of the so-called breakeven rate needed to prevent the unemployment rate from rising.
Friday’s report comes before the bulk of the Iran war started to hit the US economy. Musalem expects geopolitical uncertainty to add to employers’ reluctance to hire. This is coupled with lower expected job growth on account of lower immigration into the US, due to new policies put in place by the Trump administration.
A new paper out from the Federal Reserve by Seth Murray and Ivan Vidangos says the so-called “breakeven pace” of job growth this year could be significantly lower than even the historic low reached during the pandemic. The authors note the rapid slowing of net immigration may translate into such a large drop in labor force growth that the breakeven pace could fall to nearly zero, requiring less than 10,000 new jobs per month this year.