The March jobs report was surprisingly strong, with the economy adding 228,000 jobs, driven by strong jobs growth in health care, restaurants, and state and local governments. The household survey showed a modest rise in the unemployment rate, which edged up to 4.2 percent. The unemployment rate has stayed in a range between 4.0 percent and 4.2 percent since last May. The employment-to-population ratio (EPOP) was unchanged at 59.9 percent. The number of people reported as employed in the survey rose by 201,000, partially reversing a decline of 588,000 reported for February.

Employment Gains Widely Spread Across Sectors

Health care added 53,600 jobs in March, almost exactly in line with its monthly average of 52,000 jobs in the 12 months prior to February. There is still no evidence that hospitals and other employers are delaying hiring based on fears of funding cuts. Restaurants were the second leading sector, adding 29,800 jobs – but this followed a reported loss of 28,300 jobs in February. Employment in the sector is down by 25,500 since December.

State and local governments continue to add jobs at a healthy pace, apparently also little affected so far by cuts. They added 23,000 jobs in March, far more than offsetting the reported drop in federal employment of 4,000. The retail sector added an unusually large 23,700 jobs, which was almost entirely due to an increase in employment in food stores of 20,700. That in turn was mostly reversing a decline of 16,600 reported for February.

Couriers (delivery people) added 15,800 jobs. This sector has been adding jobs at a rapid pace since October, adding an average of 22,500 jobs. This followed a year where employment was virtually stagnant. This could reflect increased demand for items in advance of tariffs.

Construction and Manufacturing Both Add Jobs in March

The construction sector added 13,000 jobs, all of it due to a rise of 19,300 jobs in non-residential specialty trades contractors. Employment in residential specialty trade contractors fell by 12,900. This is a sector that makes heavy use of immigrants.

Manufacturing employment rose by 1,000 after rising 8,000 in February – but is still 6,000 below its recent peak in November and 74,000 below its year ago level. Employment in the auto sector edged down by 200 in March. It is 13,800 below its level one year ago.

Wage Growth Edges Down

The year-over-year rate of wage growth edged down to 3.8 percent from a 4.0 percent pace in February and through 2024. The annualized rate over the last three months was 3.6 percent. This may make the Fed more comfortable about lowering rates in the event the economy slows substantially, but the monthly data are erratic so it would be a mistake to make too much of the slowing at this point.

It is also difficult to get a sense of productivity growth this quarter, which had been very strong through 2024. With the data to date indicating a fall in GDP in the first quarter, productivity growth could be negative for the quarter, even though the index of aggregate hours has risen at just a 0.5 percent annual rate. Rapid productivity had allowed for more rapid wage growth, without causing inflationary pressures in the last year.

Prime Age EPOP Edges Downward

The EPOP for prime-age workers (ages 25 to 54) edged down to 80.4 percent, which is 0.5 below the post-pandemic peak of 80.9 percent reached for three months last summer. At 86.0 percent, the EPOP for prime age men is 0.6 PP below its peak, while the 74.9 percent rate for women is 0.8 pp below the all-time high hit last May.

Unemployment Rate for College Grads Hits Highest Level Since 2021

The unemployment rate for college grads edged up to 2.6 percent, the highest rate since September of 2021. It had been as low as 1.8 percent in September of 2022. The unemployment rate for workers with some college or just high school degrees is little changed from its year ago levels.

Unemployment Due to Quits Falls, but So Does Involuntary Part-time Work

One discouraging sign was a drop in the share of unemployment due to voluntary quits, which fell to 12.3 percent. This could indicate workers are not confident about their labor market prospects. We would expect this number to be over 14.0 percent given an unemployment rate near 4.0 percent. However, it was also low through much of 2024.

On the plus side the number of workers involuntarily working part-time fell by 157,000 partially reversing a rise of 460,000 reported for February. This caused the U-6 measure of unemployment to edge down from 8.0 percent to 7.9 percent. The story for young workers was also positive, with the unemployment rate for workers between the ages of 20-24 falling from 8.3 percent to 7.5 percent, reversing the rises in the prior two months.

Mostly Solid Jobs Report, But Some Warning Signs

The strong job growth reported for March indicates the labor market is still solid, but there are some grounds for concern. The prior two months’ data were considerably weaker, and both were revised downward this month, bringing the three-month average to 152,000. This is still a very healthy pace for an economy with large numbers of baby boomers retiring, but considerably slower than the pace reported for March.

The slowing of wage growth can also be an indication of a weakening labor market. Again, the data are sufficiently erratic that it would be a mistake to read too much into the March numbers. Also, the Fed probably feels more comfortable with a pace of wage growth closer to 3.5 percent than 4.0 percent, but that does likely translate into slower real wage growth. The drop in the share of unemployment due to quits is also somewhat of a cause for concern, but this share had been lower in 2024.

Finally, the rise in the unemployment rate for college grads is peculiar. It may be reversed in subsequent months, and their unemployment rates are still well below the rates for those with less education, but it does look like a real labor market phenomenon.