After a month of deep uncertainty amid a sudden meltdown in parts of the banking sector, the U.S. jobs market is still expected to demonstrate its resilience in the face of headwinds.
Ahead of the upcoming jobs report this Friday from the Labor Department, economists are predicting that the U.S. economy added hundreds of thousands of new jobs in March, building on a hiring momentum that began at the start of this year. In the last three months, the U.S. added an average of 351,000 jobs, a display of strength after signs of slowing across the economy in the last quarter of 2022 and despite the Federal Reserve raising interest rates at its fastest pace in decades last year. In March’s jobs report, it is expected that more jobs will be produced, albeit at a slower pace.
“We would expect to see some cooling just given the fact that the economy is slowing,” said Jay Bryson, chief economist at Wells Fargo.
Much of the news in March has revolved around the collapse of Silicon Valley Bank and the subsequent failure of Signature Bank in New York. In a nod to concerns about turmoil among the banks, the Federal Reserve raised interest rates by a quarter percentage point at its most recent meeting on March 22.
However, economists predict that any implications on hiring from banking woes are unlikely to be reflected in the upcoming report, given that it remains uncertain how much banks will curtail lending as they take stock of the current situation.
Instead, the jobs report is more likely to be influenced by a similar set of factors that characterized much of last year. Inflation has slowed in recent months, but prices have continued to rise, with the most recent reading of the Labor Department’s Consumer Price Index showing a 6% year-over-year increase in February. This level is well above the Fed’s goal of 2% inflation. The labor market has also remained tight, with nearly 10.8 million job openings still available, suggesting demand for workers is still outstripping the available supply of them.
But there are signs that the labor market is beginning to loosen, which means the number of jobs added in March may be lower than in previous months. Julia Pollack, the chief economist at ZipRecruiter, said that businesses have been more conservative in their hiring in recent months. This, she said, is because of a combination of lingering recession fears and a need to rebalance their workforces.
“They’re not rushing to overhire because they’re worried about the possibility of a downturn,” said Pollack.
This too could put more downward pressure on wage growth, which has contributed to higher inflation. In February’s jobs report, wages were up 0.2% from January, and the average workweek shrank slightly as well. Both are signs of a lower demand for labor compared to earlier in the post-pandemic recovery, which saw surging demand for workers that drove up wages. Taken together with a labor force participation rate of 62.5% that eclipses pre-pandemic levels, economists assess that March will see a slowdown in wage growth.
For all the U.S. economy’s durability in recent months, the specter of more rate hikes or a continuation of banking problems are dampening employers’ optimism. Indeed, if the recent failures among the banks revealed anything, it was how swiftly problems can emerge, adding to fears about an oncoming recession, said Daniel Zhao, an economist at the jobs site Glassdoor.
“To some extent, recent banking troubles show how a recession could happen and sharpens the focus on how quickly economic weaknesses can show up,” said Zhao.