US employers added just 236,000 jobs in March, coming in below expectations and indicating that the labor market is cooling off amid the Federal Reserve’s yearlong rate-hiking campaign to chill inflation.

The unemployment rate dropped to 3.5%, according to the March jobs report released Friday by the Bureau of Labor Statistics.

Economists were expecting a net gain of 239,000 jobs for the month and a jobless rate of 3.6%, according to Refinitiv.

NC State economist Dr. Mike Walden says the number could relieve pressure of demand for higher interest rates.

“Nationwide, businesses added jobs, but at a much more modest pace.  The slowdown in business hiring is exactly what the Federal Reserve wants, so they will likely approve of this trend,” he said.

However there are some warning signs for the economy beyond the jobs number.

“We had another strong month on the headline [growth number], the details were a bit more mixed. But we’re starting to see some trends showing, in terms of areas of continued strength versus areas of weakness,” said Dr. Gerald Cohen, chief economist at UNC-Chapel Hill’s Kenan Institute of Free Enterprise. “Hourly earnings rose, which is good for workers, although..  it’s not keeping up with inflation, or at least the year-on-year is not keeping up with inflation, and the unemployment rate ticked down. [T]hat’s despite the labor force increasing, which is kind of good news.”

The March total is the lowest since 239,000 in December and well under the 472,000 jobs added in January and 326,000 in February, according to government data reported by CNBC.

“So rising interest rates have taken a toll but as I mentioned the timing of this report means we may not be seeing the full extent of the employment, of the challenges in the financial sector,” Cohen added.

‘Solid jobs report’

“The labor market in March came in like a lion with a banking crisis and more layoffs, and is going out like a lamb with a solid jobs report,” said Daniel Zhao, Glassdoor’s lead economist, in a statement. “The labor market is still strong, but it’s gliding slowly back down to Earth.”

Friday’s government report suggested that the economy and the job market remain on solid footing despite nine rate hikes imposed over the past year by the Fed. The March job gain may lead the Fed to conclude that the pace of hiring is still putting upward pressure on wages and inflation and that further rates hikes are necessary. When the central bank tightens credit, it typically leads to higher rates on mortgages, auto loans, credit card borrowing and many business loans.

“Everything is moving in the right direction,” Julia Pollak, chief economist for ZipRecruiter, told CNBC. “I have never seen a report align with expectations as much today’s over the last two years.”

A ‘turning point’ on jobs: Soft landing for economy or recession?

However, Meredith College economist Dr. Anne York says a big problem remains in fighting inflation: Labor force participation, or people in the workforce.

“[W]ithout a large increase in labor supply, the Fed is having to fight labor demand by making it less affordable to finance purchases, which deceases demand for output.  My conclusion is that we are still a long way from finding balance between labor supply and demand, and the Fed will have to keep raising interest rates until a very noticeable recession wrings inflationary pressures out of the economy.,” York told WRAL TechWire.

 

Despite last month’s brisk job growth, the latest economic signs increasingly suggest that an economic slowdown may be upon us. Manufacturing is weakening. America’s trade with the rest of the world is declining. And though restaurants, retailers and other services companies are still growing, they are doing so more slowly.

For Fed officials, taming inflation is Job One. They were slow to respond after consumer prices started surging in the spring of 2021, concluding that it was only a temporary consequence of supply bottlenecks caused by the economy’s surprisingly explosive rebound from the pandemic recession.

Only in March 2022 did the Fed begin raising its benchmark rate from near zero. In the past year, though, it has raised rates more aggressively than it had since the 1980s to attack the worst inflation bout since then.

And as borrowing costs have risen, inflation has steadily eased. The latest year-over-year consumer inflation rate — 6% — is well below the 9.1% rate it reached last June. But it’s still considerably above the Fed’s 2% target.

Complicating matters is turmoil in the financial system. Two big American banks failed in March, and higher rates and tighter credit conditions could further destabilize banks and depress borrowing and spending by consumers and businesses.

The Fed is aiming to achieve a so-called soft landing — slowing growth just enough to tame inflation without causing the world’s biggest economy to tumble into recession. Most economists doubt it will work; they expect a recession later this year.

So far, the economy has proved resilient in the face of ever-higher borrowing costs. America’s gross domestic product — the economy’s total output of goods and services — expanded at a healthy pace in second half of 2022. Yet recent data suggests that the economy is losing momentum.

On Monday, the Institute for Supply Management, an association of purchasing managers, reported that U.S. manufacturing activity contracted in March for a fifth straight month. Two days later, the ISM said that growth in services, which accounts for the vast majority of U.S. employment, had slowed sharply last month.

On Wednesday, the Commerce Department reported that U.S. exports and imports both fell in February in another sign that the global economy is weakening.

The Labor Department on Thursday said it had adjusted the way it calculates how many Americans are filing for unemployment benefits. The tweak added nearly 100,000 claims to its figures for the past two weeks and might explain why heavy layoffs in the tech industry this year had yet to show up on the unemployment rolls.

The Labor Department also reported this week that employers posted 9.9 million job openings in February, the fewest since May 2021 but still far higher than anything seen before 2021.

In its quest for a soft landing, the Fed has expressed hope that employers would ease wage pressures by advertising fewer vacancies rather than by cutting many existing jobs. The Fed also hopes that more Americans will start looking for work, thereby adding to the supply of labor and reducing pressure on employers to raise wages.