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Labor market shows signs of a gradual slowdown

Total nonfarm payroll employment increase by 236,000 jobs in March. What should we expect from the Fed?

Signs of a slowdown in the labor market have emerged, sparking hope that the Federal Reserve may stop its ongoing tightening monetary policy, which has spurred increasing mortgage rates

But industry observers say it’s prudent to wait for inflation figures in order to bet that the Fed’s rate hikes are over. The slowdown in the labor market has been very gradual, according to them. 

Total nonfarm payroll employment rose in March by 236,000 jobs compared to the previous month, according to data released Friday by the Bureau of Labor Statistics. The Bureau reviewed the market gains in February, which grew from 311,000 jobs to 326,000 jobs, still higher than in March. 

Analysts at Goldman Sachs said the nonfarm payrolls rose in March above consensus expectation for the “twelfth straight month on continued strength across the leisure, healthcare, and business services sectors.”

Job creation was 6,000 above consensus but lower than the average pace of 346,000 over the prior three months. 

“Revisions were slightly negative, however, and industry breadth was the third weakest since the pandemic lockdowns,” Goldman Sachs analysts wrote in a report. 

The data shows that the unemployment rate declined to 3.5% in March from 3.6% in February — with the overall number of unemployed persons decreasing to 5.84 million from 5.94 million in the same period. 

“Job growth slowed in March, and wage growth decelerated further, with average hourly earnings now up 4.2% over the past 12 months,” Mike FratantoniMortgage Bankers Association‘s (MBA) senior vice president and chief economist, said in a statement.  

“These trends and recent data showing fewer job openings and increases in initial claims for unemployment insurance paint a picture of a job market that is still quite strong but beginning to flag, lagging other indicators of a slowing economic activity and tightening credit,” Frantantoni added.  

A weaker labor market may indicate that the Fed will stop raising interest rates. So far, the Fed has delivered nine rate hikes to bring inflation back to the 2% target (which is now three times this level). In its latest meeting, it raised the federal funds rate by 25 basis points amid a banking crisis. 

But industry observers said it’s prudent to wait for inflation data to conclude whether the tightening monetary policy is over. 

“MBA expects that the Federal Reserve has reached the peak for this rate cycle, and slowing job growth supports that call, but the most important data points will be those for inflation. If inflation does not show signs of also slowing, the Fed may move ahead with one last rate hike,” Frantantoni said. 

Hannah Jones,’s economic data analyst, added: “A still-hot economy could spur the Fed to take additional action, which would diverge from the tone of the last FOMC meeting. However, today’s employment data continues February’s trend, confirming that employment is cooling according to expectations.” 

“This month’s jobs report, as well as upcoming inflation data, will confirm whether the measures taken by the Fed to date are proving sufficient for the desired ‘soft landing,'” Hannah said. 

The housing market 

The construction sector lost 9,000 jobs in March, thanks to a significant decline in the specialty trade contractors segment of construction, which lost 13,900 jobs. Residential specialty trade contractors accounted for 7,800 of those jobs.

In addition, residential construction gained 800 jobs, while non-residential construction eliminated 2,800 jobs during the month. Heavy and civil engineering construction created 7,100 jobs. 

“While the housing industry, a very interest-rate sensitive sector, has been negatively impacted by the Fed’s monetary tightening, the construction labor market has not experienced a sharp decline,” Odeta KushiFirst American‘s deputy chief economist, said in a statement. “The job openings rate in construction picked up to 4.9%, down from a series high of 5.8% in December 2022, but still strong.” 

According to Kushi, the continued strength is due to the “years-long struggle that builders have had attracting and retaining skilled construction workers” and the near-record number of homes under construction, among other reasons.  

Looking forward, however, Kushi says it’s likely that the labor market “will slow further alongside the slowdown in homebuilding and a weaker housing market.”

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