All eyes will be on the March jobs report when it comes out Friday morning amid signs the once rock solid labor market is finally beginning to crack in the face of higher interest rates.
The Labor Department’s high-stakes payroll report is projected to show that hiring increased by 239,000 last month and that the unemployment rate held steady at 3.6%, according to a median estimate by Refinitiv economists.
That would mark a drop from the 311,000 gain in February and would be the weakest monthly job growth since December 2020.
While monthly jobs data is always important, the Federal Reserve is closely watching this particular report for evidence that the labor market is finally softening after months of strong job gains as policymakers try to wrestle inflation under control. The consumer price index has cooled slightly from a peak of 9.1% in June, but it remains about three times higher than the pre-pandemic average.
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“Here we go again. The upcoming employment report will be the most important ever, just like the previous dozen or so,” said Dan North, senior economist at trade credit insurer Allianz Trade North America. “Will it show a cooling labor market, giving the Fed room to breathe, or will it come out strong, putting [a 25 basis point interest rate hike] back on the table in May?”
A lower-than-expected figure on Friday could be a welcoming sign for the U.S. central bank, which has already approved nine straight interest rate hikes and opened the door to a 10th increase at its May meeting.
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The labor market has remained historically tight over the past year, but there are signs of a slowdown. A separate report released Wednesday showed there were about 9.9 million job openings in February, the first time since May 2021 that the number of available jobs dipped below 10 million.
However, job openings remain historically high. Before the COVID-19 pandemic began in early 2020, the highest on record was 7.6 million. There are still roughly 1.7 jobs per unemployed American.
There has also been a wave of notable layoffs over the past few months, and the list grows longer by the day. Amazon, Apple, Meta, Lyft, Facebook, Google, IBM and Twitter are among the companies letting workers go.
“The data in hand right now suggest the job market lost momentum since last fall,” said Bill Adams, chief economist for Texas-based Comerica Bank. “If inflation reports for March come in softer than expected, or there is another batch of negative economic headlines between now and the decision, it would likely tip the balance toward a hold in May. But inflation is still the Fed’s foremost concern, so a May hike can’t be ruled out.”
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Job losses could soon bleed into the broader labor market. Fed Chairman Jerome Powell has made it clear that policymakers anticipate job growth will slow and unemployment could climb as the Fed raises interest rates higher, but he has argued that an alternative where prices soar unchecked is worse.
For many economists, the possibility of unemployment rising has become a question of when not if.
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The central bank previously projected the jobless rate will march substantially higher to 4.6% and remain elevated in 2024 and 2025 as steeper rates continue to take their toll by pushing up borrowing costs. That could amount to more than 1 million job losses.
Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.