US employers exceeded expectations in March by adding more workers and increasing wages, signaling a robust end to the first quarter and potentially delaying anticipated interest rate cuts from the Federal Reserve this year.
According to the Labor Department’s Bureau of Labor Statistics, nonfarm payrolls grew by 303,000 jobs last month, with February’s data slightly revised downward to show 270,000 jobs added. Economists surveyed by Reuters had projected 200,000 jobs, with estimates ranging from 150,000 to 250,000.
Despite the US central bank’s aggressive rate hikes since March 2022 to curb inflation, the economy is outperforming global counterparts. Many businesses secured lower borrowing costs before the Fed’s tightening cycle, cushioning them against higher rates and enabling them to retain workers.
Healthy household balance sheets support consumer spending, while increased immigration over the past year has benefited the labor market. Favorable financial conditions are driving hiring in interest rate-sensitive industries like construction, providing a foundation for job growth despite an anticipated slowdown in payroll gains.
Although the National Federation of Independent Business’ gauge of small businesses intending to hire dipped to its lowest level since May 2020, employment in sectors such as healthcare, leisure and hospitality, and state and local government remains below pre-pandemic levels.
Average hourly earnings rose 0.3% in March, contributing to an annual wage growth of 4.1%, slightly lower than February’s 4.3%. Wage growth within the 3%-3.5% range aligns with the Fed’s 2% inflation target, although inflation currently exceeds this target.
Financial markets anticipate a June start for rate cuts, despite Fed Chair Jerome Powell’s recent comments suggesting no rush to reduce rates. The unemployment rate declined to 3.8% in March, remaining below 4% for 26 consecutive months.
Economists attribute differences between payroll and household surveys to increased labor supply through immigration not fully captured in the latter. Updated immigration estimates could influence future Fed decisions, potentially allowing the economy to strengthen further before rate cuts.
