Private service-sector hiring rebounded by 197,000 jobs in March following a two-month period of weakness, helping to fuel an overall gain of 228,000 positions. But that improvement isn’t likely to last as the impact of the new tariff regime is felt in the economy.
The Bureau of Labor Statistics on Friday revised down its initial estimates of job creation for January and February, resulting in a net change of total employment of 180,000 for those months in contrast with the RSM forecast of 175,000.
Read more of RSM’s insights on the global economy and the middle market.
Overall, March’s improvement in hiring is more noise than signal as the economy still still shows signs of enduring resilience. But investors, the public and policymakers should anticipate hiring slow toward a pace of 100,000, which is the level necessary to keep employment conditions stable.
One sign of the economy’s lasting strength was the growth in the labor supply. The workforce grew by 232,000 in March as people looked to capture higher wages, resulting in an increase in the unemployment rate to 4.2%. As such, wages increased by 0.3% in March and by 4% from one year ago.
Employment of men 25 to 54 years old stands at 89.1% and women in that cohort resides at 77.6%.
In our estimation, this increase in the workforce is a timely and positive development given the price increases across the economy that are already showing up in household bottom lines and will continue to accelerate.
Because of the new tariff regime that was announced on April 2, we expect inflation to accelerate by 1% to 1.5% over the next 12 months, which would send two important gauges of inflation, the consumer price index and personal consumption expenditures price index, into a range between 3.5% to 4%.
The Federal Reserve will look at the March jobs report and focus on the risk to rising unemployment and rising prices because of the new tariff regime.
Market participants are now pricing in five rate cuts this year—which we think is highly unlikely and prematurely pricing in a recession. The Fed in our estimation will be on hold until the second half of the year as it waits to ascertain just how much of the tariff regime is actually implemented and if it creates asymmetrical risk to inflation.
The data
Goods-producing jobs increased by 12,000 in March, construction jobs by 13,000 and manufacturing jobs by 1,000. Given the large tariffs put on goods imports, we are going to watch these sectors closely, Already, one large automaker has said it was laying off workers because of likely supply chain issues associated with the new tariff regime.
Total private sector hiring advanced by 209,000 jobs in part because of a 77,000 increase in private education and health care hiring. In addition, 48,000 jobs were added in trade and transport—another area to watch closely—24,000 in retail, 9,000 in financial services, 3,000 in professional business services and 19,000 in government.
There were declines of 6,000 jobs in temporary help and 4,000 in federal government hiring, which will begin to show large declines.
Average hourly earnings increase by 3.7% on a three-month average annualized basis while average weekly earnings advanced by 3.2%.
Total private hours worked remained unchanged at 34.2 hours per week and manufacturing hours worked—another important metric to watch—increased by 0.2% to 40.2 hours. Aggregate hours worked—a key variable in estimating spending—increased by 0.2% to 116.6.
The median duration of unemployment stood at 9.8 weeks.
The takeaway
The top-line increase of 228,000 jobs in March is more noise than signal as there was an outsized gain in private service-sector hiring that is not likely to be replicated as uncertainty over the tariffs takes its toll.
For now, the entry of people into the workforce and wage gains will provide a cushion for the economy as it adjusts to the new realities of higher taxes on imported goods.
But the tariff regime, which is an inelegant consumption tax, will send prices higher and cause disposable incomes to turn negative in the second half of the year as the new tariff regime begins to bite.
