The 228,000 job growth reported for March was considerably higher than most analysts had expected. It was accompanied by downward revisions of 48,000 to the prior two months’ data, so the net job growth was not quite as large as it first appeared. But there is no doubt that the labor market was still looking strong last month.

The headwinds that we were looking at before the March report are still there and almost certainly stronger now. The tariffs were at least partly in place for March, with the taxes on imported steel and aluminum taking effect on March 12. The federal government layoffs and grant cancellations have been ongoing. This has not led to any substantial uptick in unemployment claims, but surveys of both businesses and consumers have turned sharply negative in the last two months. It is hard to believe that this has not had some impact on hiring.

Also, the sharp slowing in immigration, which began last June, along with the uptick in enforcement measures by the Trump administration, is likely to have an impact on the size of the available labor force. The household data are highly erratic, but we should see some evidence in three-month averages. The establishment survey should also show some slowing simply because there are fewer people available to be hired.

Unemployment May Tick Higher, Breaking Out of Its Narrow Range

The unemployment rate has been remarkably stable, staying between 4.0 and 4.2 percent since last May. While the numbers for the size of the labor force in the household survey may not be very reliable given the changing patterns of immigration, the ratios on employment and unemployment are likely to be in the ballpark.

To make this point, remember that BLS added 2,871,000 people to the underlying population in January due to new population controls. Presumably the new controls were close to the mark as of January, but this means the CPS had hugely understated the underlying population, and therefore the size of the labor force and total employment/unemployment in the last months of 2024. However, the employment and unemployment rates were little affected by new controls.

Prime Age Employment-to-Population Ratio Could Fall to Lowest Level Since Early in the Recovery

The prime age (25 to 54) employment-to-population ratio (EPOP) dipped to 84.5 percent in March, tying November for the lowest level since January of 2023. This is 0.5 pp below the peak hit last summer. If the labor market is weakening, we should be seeing fewer employment opportunities for these workers.

Health Care Likely to Again Lead Employment Growth

The health care sector has consistently been the leading source of employment gains in the recovery, averaging more than 50,000 new jobs a month. It will likely again lead growth in April, although the pace could slow. The prospect of cuts in federal funding might make hospitals and other employers more hesitant to hire.

State and local governments have also been a leading source of employment growth. Here also we may see some slowing, as future federal funding becomes more uncertain. Federal government employment has only edged down modestly, falling 10,100 since January. There may be some further declines in April, but many of the people designated for being fired are still on payrolls and counted as employed.

Restaurants added 30,000 jobs in March, but that followed two months of large declines. Employment in the sector is likely to be little changed in April. Couriers (delivery people) added 15,800 jobs in March. This sector has been adding jobs rapidly since November, after two years of near-zero growth. This presumably reflects a surge in consumer purchases in anticipation of higher tariffs.

Construction and Manufacturing to Weaken

The construction sector had been a consistent source of job gains, adding an average of 15,000 jobs a month in the two years from January 2023 to January 2025. The sector added 13,000 jobs in March. Employment is likely to be close to flat in April. The manufacturing sector added 1,000 jobs in March, after adding 8,000 jobs in February, but this still left employment 6,000 below its November level. We are likely to see a modest decline in April.

Wage Growth Could Slow Further

The year-over-year rate of wage growth edged down to 3.8 percent in March from a 4.0 percent pace in February and through 2024. The annualized rate over the prior three months was 3.6 percent. With workers increasingly nervous about their labor market prospects and employers turning pessimistic on the economy’s prospects, we may see some further slowing in April.

Unemployment Rate for Black Workers May Rise

The Trump administration has made clear that it intends to reverse all efforts at encouraging the hiring of Black workers and other minorities — not just in the federal government but in the private sector as well. This will almost certainly dim their employment prospects.

This may be showing up in the EPOP for Black workers, which dropped 0.5 pp in March to 58.4 percent, the lowest level since August of 2022. This was all due to a 1.5 pp decline in the EPOPs for Black women. However, these data are highly erratic, so this decline could be noise that will be reversed in the months ahead.

Unemployment Rate for College Grads Is Unusually High

The unemployment rate for college grads rose to 2.6 percent in March, the highest rate since September of 2021. This is still well below the 4.1 percent rate for workers with just a high school degree, or the 3.5 percent rate for workers with some college, but it is extraordinarily high.

 Share of Unemployment Due to Quits May Fall Further

The share of unemployment due to voluntary quits fell to 12.3 percent in March. This is an unusually low share for an economy with a 4.2 percent unemployment rate. If the labor market is weakening, we may see some further decline in this share.

Looking for Signs of a Turning Labor Market

We had a very strong labor market for the three years prior to January 2025. We had low unemployment, rapid job growth, and healthy real wage growth once the pandemic supply chain problems were resolved. The economy and the labor market do not turn on a dime, and these forces will persist, at least for a while. However, there are all sorts of clearly visible headwinds in various economic indicators. We will be looking for evidence they are having an impact on the labor market in the April jobs report.