The US economy created the fewest jobs in six months in March, as the boost from mild temperatures faded, but a pick-up in wage gains pointed to a tightening labour market, which should allow the Federal Reserve to raise interest rates further this year.
Nonfarm payrolls increased by 103,000 last month as construction and retail sectors shed jobs, the Labor Department said on Friday. That was the smallest amount since last September and followed a 326,000 surge in February.
Temperatures returned to normal in March, with snowstorms in some parts of the country. Job growth is also moderating as the labour market hits full employment. There has been an increase in reports of employers, especially in the construction and manufacturing sectors, struggling to find qualified workers.
March’s job growth was below the 202,000 average of the past three months and matched to the roughly 100,000 jobs per month needed to keep up with growth in the working-age population.
The unemployment rate held steady at 4.1 per cent for a sixth straight month, even as people left the labour force. Economists polled by Reuters had forecast the economy adding 193,000 jobs last month and the unemployment rate dropping to 4 per cent.
A broader measure of unemployment, which includes people who want to work but have given up searching and those working part time because they cannot find full-time employment, fell two-tenths of a percentage point to 8 per cent last month.
With labour market slack diminishing, wage growth picked up a bit in March. Average hourly earnings rose eight cents or 0.3 per cent last month after edging up 0.1 per cent in February. The gain lifted the annual increase in average hourly earnings to 2.7 per cent from 2.6 per cent in February.
"The Fed will be primarily focused on the increase in average hourly earnings," said Paul Ashworth, chief US economist at Capital Economics in Toronto. "Overall, looking through the volatility, employment growth is trending higher and wage growth is starting to heat up."
Economists say annual wage growth of at least 3 per cent is needed to lift inflation toward the Fed’s 2 per cent target.
There is hope that wage growth will accelerate in the second half of the year and allow the US central bank to continue raising interest rates. The Fed increased borrowing costs last month and forecast two more interest rate hikes this year.
US stock index futures extended losses on the employment report. Sentiment was already soured by the United States and China renewing their trade spat, stoking fears that the tit-for-tat actions could spiral into a trade war.
With layoffs at historic low levels, the sharp slowdown in job growth is likely to be temporary. Despite the slowdown in job growth in March, steady wage gains should support consumer spending amid signs gross domestic product growth moderated in the first quarter.
Growth estimates for the first quarter are mostly below a 2 per cent annualised rate.
Growth in the January-March period tends to be weak because of a seasonal quirk. The economy grew at a 2.9 per cent pace in the fourth quarter. Growth this year is seen boosted by a $1.5 trillion income tax cut package and increased government spending, which economists say will offset some of the impact from the stock market gyrations.
The unemployment rate has hovered at 4.1 per cent since October as people piled into the labour market. The labour force participation rate, or the proportion of working-age Americans who have a job or are looking for one, slipped one-tenth of a percentage point to 62.9 per cent in March after rising to a five-month high of 63 per cent in February.
The return of cold weather and a shortage of skilled workers weighed on hiring at construction sites in March. Payrolls in the sector fell 15,000, the first drop since last July, after surging 65,000 in February.
Manufacturing employment increased 22,000. The retail sector shed 4,400 jobs after adding 47,300 positions in February. Temporary help, seen as a harbinger of future permanent hiring, slipped by 600.
Leisure and hospitality employers added only 5,000 jobs last month, the least since September. Government payrolls rose by 1,000 in March. – Reuters
