What to expect from the March jobs report


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For the past 50 years, the US unemployment rate has mostly been well above 4%, even rising to almost 15% during the pandemic. However, in the turbulent period that followed lockdowns and other economic disruptions from the pandemic, it has remained below 4% for more than two years.

That remarkable streak could come to an end on Friday at 8:30 a.m. ET, when the Bureau of Labor Statistics releases its March jobs report.

February brought the unemployment rate within 4%, rising to 3.9% from 3.7% in January. And for March, it’s “very predictable” that the jobless rate could hit 4%, said Michael Strain, director of economic policy studies at the American Enterprise Institute.

While that would not represent a particularly significant step, it is likely to make headlines because many economists think there is a “broader symbolic meaning” associated with no longer having an unemployment rate below 4%, he said.

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February’s jobs report came as another surprise to economists. Instead of the 200,000 job gains they predicted, employers hired 275,000 workers.

However, economists’ forecast for February may not be so far-fetched. As has been the case with many recent jobs reports, the number of positions that the BLS initially estimated were added in previous months may be significantly revised.

For example, last month’s January job gains were revised up to 229,000 from 353,000 that started 2024.

Economists are again forecasting 200,000 jobs last month, according to FactSet consensus estimates.

Federal Reserve officials are likely to pay close attention to the pace of wage growth. This is because faster wage growth can lead to higher overall prices as it means consumers have more money to spend.

Last month it slowed slightly, and economists expect progress to continue.

Fewer people are leaving their jobs: BLS data released Tuesday showed that February’s exit rate (voluntary separations as a percentage of employment) remained low. Higher attrition rates are usually associated with higher wage and price inflationary pressures.

At the same time, the activity of layoffs has not increased.

Last month, the number of job cuts announced by US-based firms remained largely flat with activity in March 2023, according to new data released Thursday by research firm Challenger, Gray & Christmas.

Job layoff announcements rose last month by about 7%. However, this is an increase of just 0.7% year-on-year, according to Challenger.

Through the first quarter of this year, layoff announcements are down 5% from the first three months of 2023.

“Many companies seem to be returning to a ‘do more with less’ approach,” Andy Challenger, senior vice president of Challenger, Gray & Christmas, said in a statement. “While technology continues to lead all industries so far this year, some industries, including energy and industrial manufacturing, are cutting more jobs this year than last year.”

The latest weekly jobless claims released Thursday by the Labor Department showed initial claims for jobless benefits climbed to a nine-week high of 221,000, slightly above expectations. However, the number of people already collecting unemployment benefits fell by 19,000 to 1.79 million.

While some economists expect the unemployment rate to fall to 3.8% in March, this forecast should be taken with a grain of salt – the forecast for the unemployment rate in February was 3.7%.

By definition, the unemployment rate captures the share of the unemployed as a percentage of the labor force. The labor force is the total number of employed and unemployed people. To be considered unemployed, it is not necessary to have been laid off recently.

The BLS classifies someone as unemployed if they are not working but are available for work and have made a specific effort in the past month to find a job. If they do not meet these criteria, they are not considered part of the workforce.

Mathematically, the unemployment rate can rise within a month for a number of reasons.

One is when the percentage of unemployed and employed increases disproportionately. This can happen in a situation where, for example, many graduates start working, but at the same time previously employed people are laid off.

Another is if the number of unemployed is relatively unchanged from one month to the next, but the number of employed falls. This can happen if, for example, many people retire.

It can also rise when the number of unemployed rises and the number of employed falls. That’s what happened in February.

The direction of the unemployment rate in one month is completely independent of the main payroll employment number because the two come from different surveys. That explains why the unemployment rate rose to 3.9% in February, despite 275,000 job gains that were well above economists’ expectations.

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In February, US employers hired 275,000 new workers. Economists expected the economy to have added 200,000 new positions.

So it’s not automatically a bad sign for the economy when the unemployment rate rises. But if the jobless rate rose to 4% last month and the pace of job gains slowed sharply from February, that would be “a pretty clear indication that the economy is softening,” Strain said.

However, if the unemployment rate reaches 4%, “it signals to workers that they are losing some of their extremely strong leverage in the labor market,” said Aaron Sojourner, a labor economist at the WE Upjohn Institute for Employment Research.

That’s a stark contrast to November 2021, the last time the U.S. unemployment rate hit 4%, when a sudden influx of pandemic-suppressed demand left companies desperate to hire. As a result, workers saw unprecedented wage increases.

But those gains have slowed and workers have lost some of the leverage they gained, according to a model developed by Sojourner. However, workers have far more leverage now than they have had for most of the past 20 years.

The loss of some leverage, combined with a rising unemployment rate, means employers can hire and retain less expensive talent, Sojourner told CNN.

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Economists predicted the US economy would enter recession after the Federal Reserve began its aggressive rate hike campaign to tame inflation. Instead, the labor market has remained resilient, adding hundreds of thousands of jobs every month since then.

After the Federal Reserve began raising interest rates two years ago to curb 40-year high inflation, economists predicted the unemployment rate would soon reach 4%.

Strain, for example, said he thought the unemployment rate would have been in the 4% range, if not higher, by the second quarter of this year.

That didn’t happen in part because consumer spending remained strong, a byproduct of unprecedented levels of government stimulus during the pandemic.

Additionally, a practice known as “job hoarding,” where employers keep employees on the payroll to ensure they are properly staffed after the economy recovers from a potential recession, has also helped keep low unemployment rate.

But just because the unemployment rate hasn’t hit 4% doesn’t mean the job market isn’t cooling. Spoiler alert: It is.

The unemployment rate rose half a percentage point from a post-pandemic low of 3.4% last April. The pace of monthly job gains has slowed significantly over the past two years. And layoffs are rising, according to job openings and labor turnover data the BLS released Tuesday.

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