The American labor market slowed last month, although the jobless rate remained low. This is because the world’s greatest economy remains strong, despite sharp increases in borrowing prices.
According to the Labor Department, companies gained 236,000 jobs in March. This was lower than in February, but it was close to expectations.
The unemployment rate remained close to all-time lows at 3.5%.
People are paying close attention to the data as the US central bank hikes interest rates to keep prices from rising too quickly.
Borrowing money becomes more costly when interest rates rise. As a result, businesses will borrow less, making it less likely to hire new workers or lay them off.
Nonetheless, the US labor market has resisted projections that it would slow.
Employers have added more than 330,000 positions each month on average over the last six months, and there are currently more job opportunities than employees.
According to analysts, the recent US Department of Labor report indicated that things might be changing. They cited fewer construction, manufacturing, and retail jobs as examples.
Wage growth has slowed as well. The average hourly wage increased by 4.2% between March 2018 and March 2019. This is lower growth than the 4.6% seen in February and the lowest since the middle of 2021.
“Overall, the headline growth was slightly greater than we expected, but it remains the weakest monthly gain since December 2020,” said Capital Economics’ deputy chief US economist Andrew Hunter.
More termination of jobs
In recent weeks, major corporations such as the consulting firm Accenture, the entertainment giant Disney, and the fast food chain McDonald’s have all announced job cuts.
Yet, more employees have been hired in bars, restaurants, schools, and hospitals. This offers people hope that the economy will slow and inflation will fall without triggering a terrible recession.
In February, the rate of price rises in the United States reached 6%.
This is down from more than 9% in June last year but remains far above the Federal Reserve’s 2% target.
Numerous central banks throughout the world, including the Federal Reserve, have raised interest rates to restrain the rate of price increases.
The bank has hiked interest rates nine times since March of last year. One of those times was when two of the largest bank failures in the United States occurred since the 2008 global financial crisis.
According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, the March jobs report was the “quiet before the storm.”
He predicted hiring would plummet when Silicon Valley Bank (SVB) and Signature Bank left the business.
He stated that the March numbers reflect life before the SVB but that the impact of stricter lending conditions is on the way. Yet, he believes unemployment will climb dramatically for the rest of the year.
Some politicians are placing additional pressure on Federal Reserve Chairman Jerome Powell. They claim the bank is pursuing moves that will force businesses to lay off many employees.
When asked about the increase from last month, Mr. Powell cited the robust labor market and expressed optimism that the government could achieve a “soft landing.” This suggests there will be no recession; if there is, it will be brief.
Despite the banking crisis, the United States hiked interest rates
Following a run of bank failures, the US Federal Reserve has boosted interest rates once more. This is despite concerns that the move may exacerbate the economy’s problems.
The Federal Reserve hiked its interest rate by 0.25 percentage points and declared the banking sector “sound and resilient.”
But, it also stated that the consequences of collapsed banks could hinder economic growth in the following months.
To keep prices steady, the Fed has increased borrowing money costs.
Nonetheless, interest rates have climbed dramatically since last year, straining the financial system.
Two US banks, Silicon Valley Bank and Signature Bank, went out of business last month. Increasing borrowing rates contributed to their failure.
There are concerns regarding the value of bonds owned by banks, as rising interest rates may reduce their value.
Banks typically hold many bonds in their portfolios, meaning they could lose significant money. Banks, on the other hand, may be alright if the value of their bonds falls as long as they are not obliged to sell them.
Authorities worldwide have stated that they do not believe the failures threaten global financial stability and that there is no need to divert attention away from measures to reduce inflation.
Last month, the European Central Bank raised its key interest rate by 0.5 percentage points.
Subsequently, the Bank of England will set its interest rate. This comes just a day after official figures indicated that inflation in February soared to 10.4%, significantly higher than predicted.
Read Also: Jobs surges in the US despite slowdown
The Federal Reserve’s chairman, Jerome Powell, stated that the Fed was still fighting inflation. He described Silicon Valley Bank as an “outlier” in a robust financial sector.
He did, however, agree that the recent turmoil was likely to delay growth, albeit he did not know how much.