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The 236,000 net jobs added in March indicate that the labor market is still considered to be strong. However, there are signs of weakness. The March number was the lowest in over two years. While the unemployment rate declined from 3.6% to 3.5%, that happened because the number of people coming into the labor force to look for work declined, not because more people found jobs. Actually, the number of job losers jumped.
The first sign of a slowdown in manufacturing is usually a cutback in temporary help, where hiring has been on a slow downtrend for a year. The number of housing tradesmen has also declined over the first three months of 2023.
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Hiring in services is still strong, given the labor shortages in the sector. There were shortages in healthcare even before the pandemic, and these are continuing. The numbers of food service and personal-care services workers (such as hairdressers) have still not risen past their pre-pandemic levels; they are among the few sectors of the economy where that has not happened yet. As a result, a slowing economy may dampen hiring in services, but will not stop it.
Wage growth slowed for all workers in March, to a 3.2% pace over the past three months, though the yearly rate is still 4.2%. We expect that the yearly rate will also slow, to around 3.3% before the end of 2023. However, wage growth for production workers has been running higher, illustrating the various labor shortages at the lower end of the wage scale. Their wage gains slowed to a 4.2% pace over the past three months and a yearly rate of 5.1%. We expect this to come down to 4.3% before year-end.
The Federal Reserve will continue to raise interest rates to try to slow the economy and cool inflation, with a quarter-point rate hike likely at its next meeting on May 3. This could be the last rate hike the Fed will do, but the decision to pause its inflation-fighting campaign at the next Fed meeting (June 14) will depend on further evidence of a labor market slowdown, and also on the upcoming consumer price index (CPI) report, the next of which will be released on April 12.
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