US jobs rebound masks labour fragility

America’s labour market delivered a stronger headline performance in March, but the underlying picture still points to a jobs backdrop that remains exposed to shocks. Nonfarm payrolls rose by 178,000 and the unemployment rate edged down to 4.3 per cent, according to the Bureau of Labor Statistics, offering relief after February’s revised loss of 133,000 jobs. Yet the rebound was flattered by temporary factors, including the return of striking healthcare workers and weather-related gains in construction, while broader measures of hiring and labour force participation continued to suggest a market that is stable on the surface but not especially sturdy underneath.

That tension is what makes the labour market vulnerable rather than weak in a conventional recessionary sense. The unemployment rate is still low by historical standards, layoffs remain contained, and the March payroll figure was stronger than economists had expected. But the pace of hiring has slowed sharply, job growth over the past year has been narrow, and the labour market is leaning heavily on sectors such as health care and public-facing services rather than showing broad-based momentum across the economy. BLS said payroll employment had changed little on net over the prior 12 months, a reminder that one stronger month does not, by itself, settle the debate over whether the market is re-accelerating or merely bouncing around a softer trend.

The most telling warning light came days before the payrolls release, when the Job Openings and Labor Turnover Survey showed openings falling to 6.882 million in February and hiring dropping to 4.849 million, the lowest since the pandemic shock of March 2020. That matters because hiring, more than layoffs, often reveals how confident employers feel about demand. Businesses that are unsure about the outlook do not always rush to fire staff, but they do slow recruitment, leave vacancies unfilled and become more selective. Reuters reported that Federal Reserve Chair Jerome Powell has described the market as operating near a “zero-employment growth equilibrium”, shorthand for a labour market where lower labour supply is helping to keep unemployment from rising even as hiring momentum fades.

March’s details reinforced that impression. Health care accounted for 76,000 of the 178,000 jobs added, with 35,000 of those in physicians’ offices as workers returned from strike action. Construction added 26,000 and transportation and warehousing 21,000, but federal government employment fell by 18,000 in the month and is down by 355,000, or 11.8 per cent, from its October 2024 peak. Financial activities also slipped. Average hourly earnings rose 0.2 per cent on the month and 3.5 per cent from a year earlier, while the average workweek edged down to 34.2 hours. Taken together, those figures suggest a labour market still generating jobs, but not one showing the sort of broad, self-sustaining strength that would remove concern about a downturn later in the year.

The household survey was hardly unequivocal either. Labour force participation held at 61.9 per cent, while the number of people marginally attached to the labour force rose by 325,000 to 1.9 million and discouraged workers increased by 144,000 to 510,000. Reuters noted that 396,000 people left the labour force in March, a shift that helped lower the unemployment rate. That is an important distinction: a falling jobless rate usually signals strength, but when it is accompanied by weaker participation, it can instead point to people stepping back from job searches. Long-term unemployment, at 1.8 million, also remained elevated from a year earlier.

For the Federal Reserve, this leaves policy in an awkward place. Stronger payroll growth and slightly firmer breadth in March reduce the pressure for an immediate rate cut, especially with inflation risks still alive. At the same time, the hiring slowdown, weaker openings data and softer labour supply dynamics argue against assuming the jobs market is comfortably past danger. Fed officials have repeatedly said they do not need further cooling in employment conditions to bring inflation back to target, a sign that the balance of risks has shifted from an overheated labour market to one that could deteriorate more quickly if growth slows.