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US economy adds 303,000 jobs, unemployment falls to 3.8% in March as labor market continues to impress

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US economy adds 303,000 jobs, unemployment falls to 3.8% in March as labor market continues to impress

The US economy added more jobs than expected in March while the unemployment rate ticked lower, underscoring signs the labor market remains on stronger footing than many economists had predicted.

Data from the Bureau of Labor Statistics released Friday showed the labor market added 303,000 nonfarm payroll jobs in March, significantly more than the 214,000 expected by economists. Meanwhile, the unemployment rate decreased to 3.8% from 3.9% in February.

Meanwhile, wages, considered an important metric for inflation pressures, increased 4.1% year over year, their lowest annual gain since June 2021. On a monthly basis, wages increased 0.3%, an increase from the previous month’s 0.2% gain.

The report comes as investors watch for signs of cooling in the labor market while hoping for overall strength to support Federal Reserve Chair Jerome Powell’s current base case for three interest rate cuts later this year. After two months of strong job gains, Powell referred to the labor market as “strong but rebalancing” in a speech at Stanford University on Thursday.

A healthy job market has been considered key to the economy avoiding recession while the Fed keeps rates restrictive to help fight inflation.

“The strong and broad-based pace of job creation in March topped all estimates and underscores the Fed will be in no hurry to start cutting interest rates,” Nationwide chief economist Kathy Bostjancic wrote in a note to clients. “However, as Chairman Powell has indicated, the robust increase in employment will not preclude an easing of monetary policy since in part it reflects an increase in labor supply.”

To Bostjancic’s point, the labor force participation rate picked up to 62.7% from 62.5% previously, and the average weekly hours worked ticked up from 34.3 to 34.4.

The largest jobs increases in Friday’s report were seen in healthcare, which added 72,000 jobs in March. Meanwhile, government employment added 71,000 jobs. Construction added 39,000 jobs, doubling its average monthly gain over the last 12 months.

Broadly, other data out this week has reflected a still-resilient labor market. The latest Job Openings and Labor Turnover Survey (JOLTS), released Tuesday, showed both job openings and hires ticked up slightly in February. Meanwhile, the latest data on private employment from ADP showed 185,000 private jobs were added in March, above the 155,000 seen in February.

“The February Job Openings and Labor Turnover Survey report is consistent with a labor market that is still quite healthy,” Oxford Economics lead US economist Nancy Vanden Houten wrote in a note to clients on Tuesday.

The recent labor market data paints a picture of a strong economy that, for now, appears to be able to withstand higher interest rates while the Fed waits for inflation to fall further. Investors shifted their bets on when the Fed will cut slightly following the report. Investors are now pricing in a 55% chance the Fed cuts in June, down from a 60% chance a week ago, per the CME FedWatch Tool.

“The blockbuster 303,000 increase in non-farm payrolls in March supports the Fed’s position that the resilience of the economy means it can take its time with rate cuts, which might now not begin until the second half of this year,” Capital Economics chief North America economist Paul Ashworth wrote in a note to clients.

Boston, MA - March 20: Construction workers look up at damage to the South Station Tower. (Photo by Jonathan Wiggs/The Boston Globe via Getty Images)

Construction workers look up at damage to the South Station Tower. (Jonathan Wiggs/The Boston Globe via Getty Images) (Boston Globe via Getty Images)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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