US economy gained 431,000 jobs in March as tight labour market persists

The US recorded another month of jobs growth in March as higher wages lured more workers back to the labour force, giving the Federal Reserve another data point supporting an aggressive tightening policy to tame inflation.

Employers in the world’s largest economy added 431,000 jobs last month, according to the Bureau of Labor Statistics, a cooler pace than the upwardly revised 750,000 positions created in February and less than Bloomberg’s consensus forecast of 490,000 jobs.

The unemployment rate was 3.6 per cent, a 0.2 percentage point drop from the level in February and the lowest level since before the pandemic.

The data also showed a pick-up in monthly wage growth after a surprising slowdown in February.

Average hourly earnings registered a 0.4 per cent monthly gain, translating to a 5.6 per cent increase from the same period last year, as businesses continue to compete for talent and rush to fill a near-record number of job vacancies. For every unemployed person, there are roughly 1.7 openings.

As wages have increased and concerns over the Covid-19 pandemic have receded, the share of Americans either employed or looking for work has crept higher, but remains shy of pre-pandemic levels.

The shortfall narrowed marginally in March, with the labour force participation rate edging up 0.1 percentage point to 62.4 per cent. In February 2020, it stood at 63.4 per cent.

The yield on the US two-year Treasury note, which is sensitive to monetary policy expectations, was up about 0.1 percentage point to 2.43 per cent after the payrolls data, having earlier risen 0.04 percentage point.

The jobs data were collected as Russia’s war in Ukraine escalated sharply, triggering a surge in the prices of oil and other commodities. Despite heightened uncertainty and soaring costs the US labour market remains extremely tight by historical standards.

At a press conference in mid-March following the first interest rate increase since 2018, Jay Powell, chair of the Federal Reserve, warned the labour market was “tight to an unhealthy level” and expressed concern about the potential feed through of higher wages to price pressures.

With inflation running at the fastest pace in 40 years, the US central bank has signalled its plans to steadily tighten monetary policy after two years of highly stimulative settings.

Officials have expressed a clear willingness to increase the pace further and deliver this year at least one half-point rate rise — something it has not done since May 2000.

Most policymakers expect rates to approach 2 per cent by the end of the year from the current range of 0.25 per cent to 0.50 per cent, according to the latest projections, and eventually rise to 2.8 per cent in 2023. That is above the median estimate of the “neutral” rate and suggests a policy stance that begins to restrict economic activity.

Despite a tighter fixing, members of the Federal Open Market Committee and other bank branch presidents do not believe their efforts to tame inflation will lead to a sharp rise in unemployment or cause a recession.

The bond market has been flashing a possible warning sign for the US economy after the inversion this week of one widely watched portion of the yield curve, which tracks the difference between two-year and 10-year Treasury yields.

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