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Employment surged by 228,000 in March as winter storms abated across the country. Also, job growth in January and February was revised down, reflecting the severity of the storms and the California wildfires. The usual sectors contributed to growth in March: construction, retail, transportation and delivery, health care and social assistance, food service, miscellaneous services, and state and local government.
But there are warning signs of a future slowdown: Business and administrative support service employment dropped by 10,600, general merchandise retail and warehousing lost 14,200 jobs, and federal government employment fell by 4,000. We expect that federal employment will drop further in the April jobs report. Finally, while food service employment rose by 29,800, this only brought the sector back to its January level after a big drop in February. Food service hiring tends to reflect the strength or weakness of the overall economy. Going forward, any weakness there may also reflect tighter immigration enforcement.
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Consumer and business uncertainty is likely to upset hiring plans. Hiring is often delayed when consumers are concerned about losing their jobs, or when businesses don’t know if there will be a positive return to investing in additional workers. Prior to the recent drama over tariffs, we expected monthly job growth of about 150,000 new positions to continue. Now, that could fall to around 100,000, if enough employers decide to hold off on hiring while they sort out the effects of the new tariffs on both their businesses and the economy as a whole. And when hiring plans get put on hold, the unemployment rate tends to rise. We expect it to hit 4.5% by the end of the year, up from its current 4.2%.
The uncertainty and the possible economic slowdown will likely restrain pay gains. Annual wage growth slipped a bit, to 3.8% in March. The Federal Reserve would actually like to see annual wage gains come down to below 3.5%, given that stronger wage growth makes it harder to bring overall inflation down to the Fed’s goal of 2%. The Fed would also like monthly job gains to continue to average 150,000, a level that would suggest the labor market won’t overheat again. Of course, if the Fed sees the unemployment rate on a steady upward trend, and a significant economic slowdown taking shape, it may cut interest rates regardless of what inflation is doing.
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