• US job growth slowed in March but remained strong, with net job creation of 236,000. Job growth was averaged 345,000 over the past three months, well above the long-run pace.
• The unemployment rate fell slightly in March to 3.5% and remains near a 50-year low.
• Wage growth fell on a year-over-year basis in March but remains too high for the Federal Reserve.
• The FOMC is likely to raise the federal funds rate by 25 basis points when it meets in early May.
• PNC expects a mild recession and an increase in the unemployment rate later this year.

US employment increased by 236,000 in March, according to a survey of employers from the Bureau of Labor Statistics. Job growth was revised higher in February, to 326,000 from 311,000, while January job growth was revised lower to 472,000 from 504,000, for a net downward revision of 17,000. Over the past three months job growth has averaged 345,000, well above the economy’s long-term potential. Although job growth is gradually slowing, it remains too strong for the Federal Reserve, which is concerned about inflationary pressures from the labor market. 

The unemployment rate fell to 3.5% in March from 3.6% in February; the rate was 3.4% in January, which was the lowest unemployment rate since 1969. The unemployment rate fell in March despite a big increase in the labor force, the number of people working on looking for work. It appears that the very tight labor market is drawing more people into the job market, which could slow wage growth. 

The private sector added 189,000 jobs in March, with the loss of 7,000 jobs in goods-producing industries and gains of 196,000 in service-providing industries. Government employment rose by 47,000 in March. 

Average hourly earnings rose 0.3% in March from February (0.27% before rounding), after a 0.2% increase in March. On a year-over-year basis wage growth was 4.2% in March, down from 4.6% growth in February and above 5% growth through much of 2022. Wage growth was around 3.5% before the pandemic. 

The US labor market is gradually slowing. Job growth, which was averaging around 560,000 in the first three months of 2022, is down to 345,000 in the first three months of this year, but that is still too hot for the Federal Reserve. There are signs that the monetary policy tightening that has been taking place for more than a year is starting to weigh on the labor market, with small declines in employment in interest-rate-sensitive industries like construction and manufacturing in March. But job growth is still running too strong for the central bank, and the Federal Open Market Committee is likely to raise the fed funds rate by 25 basis points when it meets in a few weeks, especially now that problems in the banking system appear to have settled down. 

One encouraging data-point is the labor force participation rate, the share of adults working or looking for work. It was above 63% before the pandemic but was stuck between 62.1% and 62.4% throughout 2022. But the rate has increased in each of the past two months and is now at 62.5%; it has not been this high since before the recession. If strong labor force growth continues job growth can run a bit hotter without creating inflationary pressures, perhaps giving the FOMC a bit more breathing room to avoid fed funds rate hikes. 

PNC’s outlook is for job growth to slow further in 2023 as the drag from higher interest rates over the past couple of years continues to work its way through the economy. PNC expects job losses, and a mild recession, starting in the second half of this year. The economy will start to turn around in mid-2024 as the Fed cuts interest rates early next year in response to the recession. The unemployment rate will increase throughout the rest of this year, peaking at above 5% in mid-2024, before starting to decline with an improving economy.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance, and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.