U.S. businesses added 303,000 new jobs in March, once again surpassing expectations. March’s job gains represent the highest total since January 2023, and the labor market shows few signs of letting up. Unemployment peaked at 3.8%, and we’re in the longest stretch of sub-4% unemployment rates since the 1960s.
The March jobs report contained little bad news. The main challenges, if any, relate to industries and expectations for interest rate changes.
Government, healthcare, leisure and hospitality, and construction accounted for three-fourths of all jobs added in March. Government, leisure, and hospitality have continued to play catch-up following the pandemic. The rising demand of an aging population and recovery from pandemic-induced burnout has bolstered healthcare.
Despite headwinds from rising interest rates, construction added nearly 10% of new jobs over the past year despite only accounting for 5% of the workforce. The industry’s employment growth has been strengthened by strong demand for housing, especially with expectations that interest rates will begin to fall by the end of this year. Specialty trade contractors – which include concrete pouring, plumbing, painting, and electrical – accounted for two out of every three construction jobs added in the last 12 months.
The work of specialty trade contractors is a key component of new construction, an important factor in our housing supply when many homeowners are locked into mortgages with rates well below 7%. As of last summer, nearly two-thirds of mortgages had interest rates below 4%.
A key challenge for businesses is convincing employees to relocate when locked into a low-rate mortgage. It may not be feasible without major adjustments to compensation or relocation packages. So, despite return-to-office initiatives, remote work may be necessary for businesses looking to add headcount or backfill open roles.
Mortgage rates remain near quarter-century highs because the Fed raised interest rates to tamp inflation. Heading into 2024, the consensus was that there would be two or three interest rate cuts this year, starting as early as June. March’s hotter-than-expected Consumer Price Index (CPI) reading and jobs report throw cold water on those expectations, with rate cuts looking more likely in the Fall than Summer.
In March, prices rose 3.5% year-over-year, more than the 3.4% expected and up from 3.2% in February, driven by increases in housing and energy costs. Inflation isn’t slowing as fast as the Fed would like, but there is a silver lining for consumers whose rising prices have crunched.
Wage growth, which came in at 4.1% in March, has outpaced inflation for 11 months, following more than two years of wages not keeping up with price growth. Prices are still rising, just not as fast as wages, and consumers should continue to feel some relief.
One thing is clear throughout the first quarter of 2024 – the focus will remain on compensation. Wage growth has been above 4% on a 12-month basis since July 2021. At the start of 2024, LaborIQ was projecting we’d end the year with wage growth near 3.5%. That’s looking less and less likely, so we and other labor market forecasters are revising our wage growth estimates upward. We expect to end the year with wage growth closer to 4%. Businesses must keep an eye on compensation to stay competitive and retain talent.
You can meet Mallory Vachon at the ERE Recruiting Conference. Her session, The State of the Labor Market: What Every Recruiter Needs to Know to Improve Workforce Planning, will be critical for TA leaders to prepare for the topsy-turvy time in the labor market, especially for recruiters.
