The American labor market remains red hot as the employment-to-population ratio among prime-age workers surged to 80.0% in March, up from 79.5% in February, and total employment increased by 431,000 jobs. The unemployment rate declined to 3.6%, the Bureau of Labor Statistics reported on Friday.
The labor force participation rate has increased by 0.7%, to 62.4%, which should put to rest the idea that prime-age Americans do not want to work.
The March gain and the upward revisions to the January and February data—which added 95,000 jobs to lift the overall gain in the first quarter to 1.68 million—underscores the urgency of the Federal Reserve to hike rates by 50 basis points at its meeting on May 4.
Over the past six months, the labor force participation rate has increased by 0.7%, to 62.4%, which should put to rest the idea, which was always erroneous in my estimation, that prime-age Americans, or those who are 25 to 54, do not want to work.
Moreover, with inflation rising and average hourly earnings up by 5.6% from a year ago and by 0.4% on the month, older workers who may have prematurely chosen to leave the workforce during the pandemic are certain to be streaming back into the labor force heading into the second quarter.
To put that in perspective, the household survey showed that 736,000 people got jobs in March while the overall labor force increased by 418,000.
The data
Given the inflation policy challenge, which is going to consume the Federal Reserve for the next three years or so, it is important that the composition of job gains be tilted toward higher-paying sectors, and that is exactly what the March report implies.
Higher-paying industries led the way, with manufacturing jobs increasing by 38,000, construction by 19,000 and goods-producing jobs increasing by 60,000.
Trade and transport added 54,000 jobs, information and financial employment increased by 16,000 each, business services jumped by 102,000, and education and health care advanced by 53,000.
The lower-paying leisure and hospitality industries increased by 112,000, and 5,000 government jobs were created on the month.
Aggregate hours worked increased at a 3.5% average annualized pace over the first three months of the year, and the median duration of unemployment was 7.5 weeks.
The takeaway
American labor market dynamics remain robust with wages rising and individuals re-entering the workforce at a remarkable pace. We are likely past the peak of large monthly gains, and given the context of rising prices and profound geopolitical tensions, we expect that monthly gains will slow to a more sustainable pace of 200,000 to 250,000 by the middle of the year with the unemployment rate heading toward 3%.
