U.S. job growth was strong last month, and the unemployment rate fell slightly.
U.S. employers added a seasonally adjusted 303,000 jobs in March, the Labor Department reported on Friday, significantly more than the 200,000 economists expected. The unemployment rate slipped to 3.8%, versus February’s 3.9%, in line with expectations.
The Federal Reserve is mandated to keep employment as strong as possible while keeping inflation under control. Balancing those objectives has put the central bank in a difficult position as it mulls
cutting interest rates this year: Cut too soon, or by too much, and inflation could heat back up all over again. Wait too long, and the strain of high rates could damage the job market, pushing the economy into a recession.
The labor market has continued to add jobs over the past year despite high interest rates. At the same time, the unemployment rate has drifted up and wage gains have cooled. In March of last year, the unemployment rate was 3.5%.
Those dynamics have defied the conventional wisdom that, for inflation to cool, job creation would need to dramatically slow down.
Lately many economists and even Fed officials have come to believe that, in part
as a result of immigration, the supply of available workers has increased. If that is right, the number of jobs can grow faster.
Supply alone isn’t enough to generate job gains, however; there has to be demand. At the moment, it still looks as if there is plenty of that. Layoff activity remains low, and the number of unfilled jobs is high, with the Labor Department reporting earlier this week that there were 8.8 million job openings as of the end of February. The job-opening rate, or openings as a share of filled and unfilled positions, was 5.3%. That has fallen over the past year, but in prepandemic 2019—a period of strength for the job market—that ratio averaged 4.5%.
But the share of people
quitting their jobseach month has fallen to prepandemic levels, which indicates that the intensity with which businesses were hiring away workers from each other has subsided. Moreover, the private-sector job market has been drawing most of its strength from just two broad sectors—private education and healthcare, and leisure and hospitality.
Economists at Bank of America call those sectors “high touch.” Much of the work must be done in person, and a lot of it—such as waiting tables or working in a hospice—entails face-to-face interactions.
High-touch employment fell sharply when the pandemic hit, and even now, four years later, appears low. Relative to the trend during the five years before the pandemic, there are some two million fewer jobs in those sectors than might have been expected.
This raises a question, points out Bank of America economist Michael Gapen. “Should we expect employment in those sectors to return to their prior trend line? Or are there structural reasons to think maybe the employment gap will not close and therefore this catch-up effect could finish sooner?” he said.
He thinks the answer might be mixed. Lately, employment growth in leisure and hospitality has moderated. One reason why is that for some of those employers, business is still down—think restaurants near offices where many people are still working from home a few days a week. Another is that some businesses adopted practices
when labor became short that probably won’t get undone. Lots of restaurants, for example, introduced QR codes in place of paper menus, allowing customers to place orders with their phones rather than waitstaff.
But for private education and healthcare, the story could be different. The loss of jobs these areas experienced when the pandemic hit was truly exceptional: Other than in 2020, employment in the sector has experienced near constant growth over the 85 years of available data. Moreover, the healthcare needs of an aging U.S. population will probably only grow. The sector is still about a million jobs short of its old trend. If that gap continues to narrow, as Gapen expects it will, it could help bolster job growth into next year.
Write to Justin Lahart at
Justin.Lahart@wsj.com
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