Skip to Content

Solid job gain drives jobless rate down to 3.6% in March

April 1, 2022 Blog 3 min read
Jim Baird Wealth Management
The labor market continues to prove its strength, adding another 431,000 jobs in March.

Nonfarm payrolls and Unemployment rate - history

The unemployment rate dropped by another 0.2 to 3.6% in March, marking the latest step in a remarkable recovery in the jobs market, given the severe distress in labor markets just two years ago. That rate nearly matches the 3.5% bottom in the last cycle, which was a half-century low. Nonfarm payrolls rose by 431,000 in March, below expectations for a gain of 490,000 new jobs for the month. That shortfall was one of only timing, as revisions to the preceding two months tacked an additional 95,000 on to total payrolls.

The U.S. economy has added at least 400,000 jobs every month since May 2021, a strong and relatively steady improvement that has reduced the gap in total payrolls that has persisted since March 2020. With last month’s gain, total payrolls are now less than 1.6 million short of their prior peak in February 2020. The total number of employed Americans rose by 7.5 million in the past year. Economic momentum may be flagging as inflation weighs on real consumption, but growth is still sufficient to drive continued job creation.

Despite the exceptionally low level of unemployment, there’s still room for further recovery in labor markets. Given the nature of the calculation, the low jobless rate doesn’t reflect the impact of individuals that simply left the labor force in the past two years and haven’t returned. Labor force participation has risen by nearly 1.0% over the past year, lifting the pool of workers by nearly 3.8 million. Despite the gain, participation remains a full percentage point below its February 2020 level. That erosion in participation has trimmed the labor force by about 2.6 million potential workers.

Much like the supply of many goods, the shortage of labor is contributing to uncomfortably high inflation. Job openings remain near record-high levels. In response, employers are raising wages to attract and retain workers, and are passing a large portion of those higher costs along to their customers. Average hourly wages rose 0.4% last month and have risen by about 5.6% over the past year. That has sweetened the pot for workers as employers adjust to the new reality.

Higher wages may continue to pull people back into the workforce, but higher inflation is also playing a significant role, particularly for low-income Americans and those on a fixed income. A short-lived inflation surge would certainly have an impact on consumer sentiment and spending habits but a comparatively limited one. An extended period of sustained rising prices is more impactful. It’s likely that some who left the workforce due to the pandemic or otherwise chose to retire earlier than planned will find themselves returning to the work as the cost of living has recently risen at a pace unseen in a generation.

It’s one thing for consumers to weather a short-term storm, but the longer inflation takes root, the greater the probability that inflation has a more lasting effect on consumer behavior.

The combination of tight labor markets, continued job creation, and persistently rising prices all point to the need for the Fed to act aggressively to cool the economy and bring inflation back under control. The trick will be for the Fed to be aggressive enough to cool conditions without throwing too much cold water on the economy, choking off growth and bringing the expansion to a premature end.

The bottom line? Although the economy is showing signs of slowing and Fed tightening is set to cool conditions even further, the strength of the labor market was still apparent in March. Solid job creation and low unemployment are the result, but the evaporating pool of labor will be a growing challenge in the absence of a more pronounced slowdown in growth in the coming quarters.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis non-factual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

Related Thinking

March 4, 2022

The unemployment rate drops to pre-pandemic levels

Blog 3 min read
March 10, 2022

Inflation hits a new four-decade high of 7.9%, as war in Ukraine continues

Blog 2 min read
March 29, 2022

Consumer confidence increased in March, but inflation still remains a threat

Blog 2 min read