Job report March 2023:

Non-farm payrolls growth in March was around expectations but showed signs that employment is in the early stages of a slowdown.

The Labor Department reported Friday that payrolls for the month rose 236k, compared with the Dow Jones estimate of 238k and below February’s upwardly revised 326k.

The unemployment rate fell to 3.5%, against expectations that it would remain at 3.6%, the fall coming as labor force participation rose to its highest level since the Covid pandemic.

Though close to economists’ expectations, the total was the lowest monthly gain since December 2020 and comes amid the Federal Reserve’s efforts to curb labor demand to cool inflation.

Along with wage gains, average hourly wages rose 0.3%, dragging the 12-month increase to 4.2%, the lowest since June 2021. The average workweek fell slightly to 34.4 hours.

“Everything is moving in the right direction,” said Julia Pollak, chief economist at ZipRecruiter. “I have never seen a report in the last two years that lives up to expectations as much as it does today.”

Although the exchange is closed on Good Friday, futures rose after the report. Treasury yields also moved higher.

Leisure and hospitality led the sectors with 72,000 job growth, down from the pace of 95,000 over the past six months. Government (47,000), professional and business services (39,000) and healthcare (34,000) also posted solid gains. Retail saw a loss of 15,000 jobs.

While the February report was revised upwards from the 311,000 originally reported, the January figure dropped to 472,000, down 32,000 from the last estimate.

An alternative measure of unemployment, which includes discouraged workers and those who have part-time jobs for economic reasons, fell slightly to 6.7%. With an increase of 577,000 jobs, the household survey, which is used to calculate the unemployment rate, was significantly stronger than the company survey.

Black unemployment fell 0.7 percentage point to a record low of 5%, according to 1972 data.

The report comes amid a plethora of signs that job creation is slowing.

In separate reports this week, companies reported that layoffs rose sharply in March, up almost 400% from a year ago, while jobless claims rose and personal payroll growth also appeared to be slowing. The Labor Department had also reported that job vacancies fell below 10 million in February for the first time in almost two years.

All of this followed a year-long campaign by the Fed to ease a historically tight labor market. The central bank hiked its benchmark interest rate by 4.75 percentage points, the fastest tightening cycle since the early 1980s, to stem rising inflation.

The job gain came in a month when the collapse of Silicon Valley Bank and Signature Bank shook the financial world. Economists expect the banking problems to have an impact in the coming months.

“The March data is effectively a throwback to the world before SVB; the payroll survey was conducted the week after the bank collapsed, far too soon for employers to respond. But the impact of tighter credit conditions is coming,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Several Fed officials said this week that they remain committed to fighting inflation and see interest rates staying high, at least in the short term. Market prices shifted after Friday’s report and traders now expect the Fed to implement a quarter-point hike in May.

“This is great news for the Federal Reserve. They have no worries about the job market when they make the next decision,” Pollak said. “Today’s report is just a tick for them.”

But investors fear the Fed’s move is likely to result in at least a shallow recession, something the bond market has been pointing to since mid-2022.

In its most recent calculation through late March, the New York Fed said the spread between 3-month and 10-year Treasuries indicates a roughly 58% chance of a recession in the next 12 months. The Atlanta Fed’s GDP tracker shows growth of just 1.5% in the first quarter, after pointing to 3.5% growth two weeks ago.

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