Employers Hired Far More Than Expected in March

The job market blew past expectations in March, with employers still adding more jobs to the economy despite high interest rates making it harder to do business.

The economy added 303,000 jobs in March, up from 270,000 in February and the most since May, according to the Bureau of Labor Statistics on Friday. That far exceeded the median forecast of a 200,000-job increase according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. The unemployment rate fell to 3.8% from 3.9%, remaining not far from the 50-year low of 3.4% it reached last April.

The report continued a recent trend of the economy running hotter than forecasters have anticipated despite the Federal Reserve’s campaign of anti-inflation interest rate hikes boosting borrowing costs on all kinds of loans. While inflation has stayed stubborn, keeping price increases higher, the flip side of a hotter economy—a labor market with workers more in demand—has kept jobs plentiful and helped workers get higher wages. 

Despite the unexpectedly large number of jobs added, wage growth slowed down in line with expectations, with average hourly pay increasing 4.1% over the last 12 months, down from 4.3% in February.

That combination—more jobs but slower wage growth, suggesting the job market is putting less upward pressure on consumer prices—is consistent with the Fed’s goal of bringing the economy in for a “soft landing” rather than an economic crash from the spate of high inflation that set in after the pandemic.  

The report gives the central bank “yet more runway toward a soft landing,” Daniel Zhao, lead economist at Glassdoor, said in a post on X, the social media platform formerly called Twitter. 

It was not, however, the kind of report that would encourage Fed officials to cut the central bank’s influential fed funds rate, James Bullard, former president of the Federal Reserve Bank of St. Louis, and former member of the Fed’s policy committee, said on CNBC.

While inflation has fallen significantly since 2022—including important measures such as “core inflation” that excludes volatile food and energy prices—a hot job market indicates high interest rates aren’t causing job losses, meaning there is less pressure on the Fed to lower them. In fact, today's report likely gives them more breathing room to keep rates high to subdue inflation. 

Fed officials have been maintaining the fed funds rate at a 23-year high since last July, and have said they plan to begin lowering the rate this year when they’re confident that inflation is firmly on a path down to its goal of a 2% annual rate. But the hotter the economic data that comes in, the more questionable that timing becomes.

After the jobs report, financial markets were pricing in a 54.9% chance that the Fed will cut interest rates at its meeting in June, down from 65% the day before according to the CME Group’s FedWatch tool which forecasts rate movements based on fed funds futures trading data.

“I think you somehow have to have a moment where the fed can take that on board—the fact that inflation has come down—but you need your moment, and January didn't provide it with the hot inflation report; February didn't really provide it; this report really isn't providing that moment,” Bullard said. “But I do think that the Fed needs to get down a little bit lower based on the data we have on inflation.”

Higher interest rates for longer would be felt throughout the economy, especially the housing market, where high rates for mortgages have made monthly payments swell and put homebuying out of reach for all but high-income first-time buyers, virtually paralyzing sales of existing homes.

"This report will bolster the case for the FOMC to hold off on any rate cuts in the near term, which will keep mortgage rates elevated for now," Mike Fratantoni, chief economist at the Mortgage Bankers Association, wrote in a commentary.