By PAUL WISEMAN (AP Economics Writer)
In March, US employers added a remarkable 303,000 new workers to their payrolls, raising optimism about the economy's ability to withstand high interest rates and inflation.
Job growth in March exceeded economists' expectations, reaching a significant 303,000, showing the economy's resilience in the face of high interest rates. With consumers spending steadily, many employers have continued to hire to meet demand.
The latest report from the Labor Department also indicated a drop in the unemployment rate from 3.9% to 3.8%, marking the 26th consecutive month with an unemployment rate below 4%. The government also revised job growth estimates for January and February, increasing the total by 22,000.
Although a surge in new jobs might typically raise concerns about wage inflation, the March report showed mild wage growth, providing some relief. Average hourly wages increased by 4.1% from a year earlier, the smallest rise since mid-2021. However, hourly pay did increase by 0.3% from February to March.
As the November presidential election approaches, the economy is expected to be a key concern for Americans evaluating President Joe Biden's re-election bid. Despite the inflation surge in 2021, Biden attributed the economy's strength to his policies, noting a significant decrease in inflation. However, average prices are still about 18% higher than they were in February 2021.
In a statement on Friday, Biden stated that the strong economy is a result of his policies.
“My plan aims to grow the economy by investing in all Americans and providing opportunities for the middle class,” he said. “Inflation has significantly decreased, but I will continue to advocate for hard-working families.”
The 303,000 new jobs added in March marked the largest increase since last May, bringing the average monthly job growth in 2023 to a strong 276,000, surpassing the 2023 average of 251,000.
Despite the significant influx of 469,000 people into the labor force looking for work, the unemployment rate decreased last month. This increase in the labor force may alleviate pressure on companies to raise wages drastically, thereby easing inflation pressures.
Although most industries increased the number of employees last month, the hiring was mostly focused in three areas: Healthcare and private education, leisure and hospitality, and government made up almost 69% of the hiring. Also, construction companies added a strong 39,000 jobs.
Four years after the pandemic reduced travel and led to closures of restaurants, bars, and entertainment venues, those industries have finally reached their pre-pandemic employment level, with a category that includes such businesses adding 49,000 jobs in March.
The Fed's policymakers are monitoring the state of the economy, the job market, and inflation to decide when to start reducing interest rates from their multi-decade highs. Rate cuts by the Fed would likely result, over time, in lower borrowing rates across the economy.
The central bank's policymakers began raising rates two years ago to try to control inflation, which by mid-2022 was at a four-decade high. Those rate increases — 11 of them from March 2022 through July 2023 — helped significantly slow inflation. Consumer prices were up 3.2% in February from a year earlier, much lower than the peak of 9.1% in June 2022.
The much higher borrowing costs for individuals and companies that came from the Fed's rate increases were widely anticipated to cause a recession, with waves of layoffs and a painful increase in unemployment. However, to the surprise of almost everyone, the economy has continued to grow steadily and employers have continued to hire at a healthy pace.
Some economists think that an increase in productivity — the amount of output that workers produce per hour — made it easier for companies to hire, raise pay, and post larger profits without needing to increase prices. Additionally, an influx of immigrants into the job market is believed to have addressed labor shortages and slowed upward pressure on wage growth. This helped reduce inflation even as the economy continued to grow.
"This report is like the macroeconomist's Holy Grail,'' said Julia Pollak, chief economist at the online job marketplace ZipRecruiter. "It's pointing toward noninflationary growth."
Noting the strong job growth, influx of new workers, declining unemployment, and slowing wage growth, Pollak said, "It suggests that the Fed can walk and chew gum at the same time, bringing down inflation without crippling the labor market."
Meanwhile, the Fed has indicated that it expects to reduce rates three times this year. But it is waiting for more inflation data to gain further confidence that annual price increases are moving toward its 2% target. Some economists have started to question whether the Fed will need to reduce rates anytime soon given the consistently durable U.S. economy.
The still-strong demand for labor has meant that some employers are still struggling to fill vacancies. One of them is John Zmuda, president of Moseys Production Machinists in Anaheim, California, who said it's still “extremely hard” to find workers.
Although he receives plenty of resumes, Zmuda said “it seems like most people are just wage-hunting” rather than seeking a long-term career.
Moseys, a privately owned company that provides supplies to the defense, aerospace, healthcare industries, aims to hire three or four more workers to a team of 27. Zmuda mentioned he has boosted salaries by 10% in the past year or so. However, the high cost of living in California, especially for housing, discourages some potential recruits.
Like many manufacturers, Moseys relies heavily on robots. However, when it comes to an employer, automation has its limits.
“People bring their thoughts and vision to the table,” Zmuda stated. “Robots do not. People consider their actions before executing them.’’
Similarly, in Duncan, Oklahoma, Southern Machine Works, which also caters to the aerospace and defense industries, requires four or five machinists.
“It’s really been a challenge to find anyone,’’ said Frank Burch, CEO of the third-generation family firm.
Attracting recruits to a rural town of 23,000 is challenging, particularly when the oil-field-services giant Halliburton is nearby and also hiring.
“We’re simply hiring individuals who appear to have the mental capacity to learn the business, and then we’re educating them through our internal training program,” Burch said.
Employers, he suggested, will probably have to get accustomed to tighter labor markets:
“When you look at the demographics of the country – the baby boom’s gone, the current generation just isn’t having children. I just don’t really see it changing in my lifetime.’’
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