Employers in the U.S. added a healthy 236,000 jobs in March, suggesting the economy remains on solid footing despite the nine interest rate hikes the Federal Reserve has imposed over the past year in its drive to tame inflation.
The unemployment rate fell to 3.5 per cent, not far above the 53-year low of 3.4 per cent set in January. Last month's job growth was down from February's sizzling gain of 326,000.
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 may be necessary.
When a central bank tightens credit, it typically leads to higher rates on mortgages, auto loans, credit card borrowing and many business loans.
Manufacturing is weakening. U.S. trade with the rest of the world is declining. Though restaurants, retailers and other services companies are still growing, they are doing so more slowly.
At the same time, some of the details of Friday's report from the Labour Department raised the possibility that inflationary pressures might be easing and the Fed might soon decide to pause its rate hikes. Average hourly wages were up 4.2 per cent from 12 months earlier, down sharply from a 4.6 per cent year-over-year increase in February.
Measured month to month, wages rose 0.3 per cent from February to March, from a mild 0.2 per cent gain from January to February. But even that figure signalled a slowdown from average wage increases in the final months of 2022.
"Today's report is a Goldilocks report," said Daniel Zhao, lead economist at Glassdoor, a website that aggregates employee reviews of companies. "It's hard to find a way it could have been better. We do see that the job market is cooling, but it's still resilient."
Bank failures complicate matters
For Fed officials, taming inflation is their top priority. They were slow to respond after consumer prices started surging in spring 2021, concluding 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.
As borrowing costs have risen, inflation has steadily eased. The latest year-over-year consumer inflation rate — six per cent — is well below the 9.1 per cent rate it reached last June. But it's still considerably above the Fed's two per cent 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 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.
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So far, the U.S. economy has proved resilient in the face of ever-higher borrowing costs. The U.S.'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 U.S. exports and imports both fell in February in another sign that the global economy is weakening.
The Labour 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 Labour 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 labour and reducing pressure on employers to raise wages.
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2023-04-07 16:31:05Z
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