Five takeaways from a strong March jobs report

Unemployment fell to 3.5 percent and the U.S. economy added 236,000 jobs in March as the labor market continued to show signs of strength, the Labor Department reported Friday.

Wage growth appears to be cooling along with corporate profits, which are still way above their pre-pandemic levels, as inflation has been declining since the middle of last year.

Inside the jobs report: Unemployment declines to 3.5 percent as labor market shows strength

The numbers are the latest sign that behind frazzled markets spooked by a recent spate of bank failures in the U.S. and Europe that prompted government interventions on both sides of the Atlantic, the U.S. economy is still in fundamentally good shape.

Here are five takeaways from Friday’s jobs report.

Labor force participation is up and unemployment for Black Americans is at a record low

Both the labor force participation rate and the employment-to-population ratio are at their highest levels since the coronavirus pandemic began in 2020. That’s in line with the Fed’s mandate of maximum employment.

The U.S. civilian labor force increased by 480,000 to 166.7 million workers. The number of employed people as a share of the population that isn’t in prison or the military is 60.4 percent, a 0.2 percentage point increase from last month.

The labor force participation rate for prime-age workers between the ages of 25 and 54 has reached the highest level since January 2020 at 83.1 percent.

Meanwhile, the unemployment rate for Black Americans is at a record low at 5 percent, a fact that’s drawing the attention of some lawmakers.

“The March jobs report released today finds the lowest unemployment rate for Black Americans on record, and the highest prime-age employment-to-population ratio since mid-2001,” Rep. Don Beyer, a member of the chief tax-writing Ways and Means Committee, wrote online Friday.

Decreasing unemployment, slowing wage growth are good news for the Fed

Despite nine consecutive interest rate hikes by the Federal Reserve and one of the fastest monetary tightening cycles in modern history, unemployment remains near 50-year lows.

The 236,000 jobs added in March are fewer than the 311,000 added in February and the 504,000 in January. But the downtick in the unemployment rate from 3.6 percent in February shows that the floodgates holding back a deluge of lost jobs are remaining in place amid warnings from lawmakers and economists.

“Underscoring the stunning ability of the US labor market to outperform expectations, the last downside miss for [nonfarm payrolls] was with the March data a year ago, and that was not exactly much of a miss,” analysts for Deutsche Bank wrote in a Friday note to investors.

Meanwhile, slowing wage growth, which is bad for workers, is a welcome sign for the Fed as the central bank weighs further rate hikes to slow down the economy.

Wages rose 3.2 percent between January and March, down from 3.6 percent growth from December through February. Annual wage growth fell to 4.2 percent from 4.6 percent, off a high last year of 5.9 percent. Labor costs represent the largest component of prices, which has historically made them a key driver of inflation, though that's likely not the case now.

The Fed lacks the legal power to lower prices through windfall profit taxes, price caps or other disciplining mechanisms, which are squarely in the realm of the White House and Congress. Instead, the Fed aims to tame inflation through the labor market, so falling wage growth levels may mean Fed can take a pause on rate hikes.

The Fed may have more room to pause rate hikes

The chances of a 0.25-percentage point rate hike at the Fed’s next rate-setting committee meeting in May are 67 percent, according to the Fed Watch tool from financial company CME Group.

The March jobs data, however, may allow the Fed to assess the impact of its hikes thus far without adding more pressure to the economy.

“While the unemployment rate is still at historic lows, this morning’s jobs report showed signs of cooling in the labor market," investment strategist Ben Vaske of Orion Portfolio Solutions wrote in an analysis.

"More people have continued to enter the workforce, taking pressure off high job opening figures and inflationary wage growth. While inflation is still well above target, this month’s lower CPI, lower PCE, and now cooler labor growth could provide a basis for a rate hike pause," he wrote.

That would be the tenth rate hike in a row since the Fed started raising interest rates in March of last year. Some economists are calling for the Fed to stop.

"The Fed's unrelenting rate hikes have been hammering away at the labor market. But workers are not to blame for rising prices and should not have to lose their jobs in the name of combating inflation, economist Rakeen Mabud of the progressive think tank Groundwork Collaborative wrote in an analysis.

"If the Fed goes back to the well at the next FOMC meeting, they will only push our economy that much closer to a devastating and completely unnecessary recession."

All eyes on the CPI next week

Inflation has been slowing despite a labor market that’s refusing to quit.

Whether the trend of declining inflation will continue in the face of a strong labor market will be seen next week with the release of the latest consumer price index (CPI) for March. Annual CPI fell from 6.4 percent in January to 6 percent in February after peaking at 9.1 percent in June.

The steady decline of inflation without a big increase in unemployment has thrown many big name economists for a loop.

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But following the initial supply disruptions that triggered higher inflation in the immediate aftermath of the pandemic, a picture of a “sellers’ inflation” is beginning to emerge: price hikes driven by companies in highly concentrated markets that have little incentive to lower their markups.

“We argue that such sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions,” University of Massachusetts economist Isabella Weber wrote in a recent paper.

Recession risks may depend on the actions of the Fed

Despite the fallout from recent bank failures and many prognostications of a recession this year, a recession may depend on choices made by the Fed.

While much of the Fed’s tightening has yet to be processed by the economy, if the central bank continues to add pressure, the chance of a recession increases.

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The chances would also increase if bank failures, like the ones that brought down Silicon Valley Bank and Signature Bank earlier this year, continue to occur. A debt ceiling standoff in Congress that threatens a U.S. default later this year would also increase the chances of large-scale economic disruption.

“There is always a danger of inflation expectations shooting up. But there are other dangers we face. Last month we learned that interest rate risks are real. Recession risks are too. The speed of the Fed’s hikes is a critical factor in both risks,” wrote Claudia Sahm, former Federal Reserve research director and founder of Sahm Consulting, in a Thursday analysis.

She exhorted the Fed to “pause.”

Sahm, who has a rule in economics named after her about the likelihood of recessions, told The Hill in an interview that the U.S. economy is not currently in a recession.

“This was such a good report,” she said. “We need to be careful, because as we’ve seen in the past, once a recession gets going, it’s really gets going.”