US jobs growth slowed in March as Fed tightening bites

US jobs growth slowed in March but not enough to deter the Federal Reserve from considering another interest rate increase as the central bank battles high inflation.

The world’s largest economy added 236,000 positions last month, according to a report from the US bureau of labour statistics published on Friday, a step down from the upwardly revised 326,000 jobs accrued in February and far below the 472,000 recorded in January. Most economists polled by Bloomberg had forecast job gains of 230,000 in March.

The unemployment rate slipped to 3.5 per cent, just above a multi-decade low. Wage growth, meanwhile, remained firm, with average hourly earnings up another 0.3 per cent in March following a 0.2 per cent increase the previous period. On a year-over-year basis, wages are have increased 4.2 per cent.

US government bonds came under selling pressure, with the policy-sensitive two-year treasury yield up 0.12 percentage points to 3.94 per cent. The benchmark 10-year yield rose 0.07 percentage points to 3.37 per cent. Prices fall when yields rise.

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Stock markets are closed in observance of Good Friday. Pricing in the futures markets indicated that investors continue to believe the Fed has implemented its last interest rate rise in this cycle.

[ Fed faces rate-hiking dilemma ]

The jobs report follows other data this week which offered tentative signals that a year-long effort by the Fed to tame inflation is starting to weigh on a historically strong labour market. Jobless claims figures, which track new applicants for unemployment aid, came in higher than expected on Thursday and figures over the past 12 months were revised significantly higher as part of an annual review by the bureau.

US job openings also dropped sharply in February, data on Wednesday showed, pushing the ratio of jobs available to unemployed people down to 1.7 from 1.9.

Fed officials have long maintained that it would take a period of “below-trend growth and some softening in labour market conditions” to get inflation back down to the central bank’s 2 per cent target. Most policymakers, as per forecasts published last month, project the unemployment rate will rise to 4.5 per cent this year and growth will slow to 0.4 per cent as they advance their monetary tightening campaign.

[ US makes ‘no apologies’ for prioritising American jobs, clean energy chief tells EU ]

Following another quarter-point rate rise last month, the federal funds rate hovers between 4.75 per cent to 5 per cent. Most officials see it peaking between 5 and 5.25 per cent this year and forecast no cuts until 2024, suggesting markets are in store for one more quarter-point rate rise.

Complicating the outlook for the Fed, however, is the extent of the economic shock posed by the recent banking turmoil. Jay Powell, the chairman, and other officials have suggested there is likely to be a credit crunch as lenders pull back, but the magnitude of the retrenchment is highly uncertain.

“Such a tightening in financial conditions would work in the same direction as rate tightening,” Mr Powell said last month, adding that it could potentially be the equivalent of a “rate hike or perhaps more than that”. – Copyright The Financial Times Limited 2023