The labor market is not one number

The labor market showed a surprising uptick in hiring this month with the economy adding 228,000 jobs in March. The numbers for January and February were revised down by 48,000 each, leading to a combined lower employment gain than reported originally. Employment growth was spread across healthcare, retail trade, transportation and warehousing, and social assistance. However, the federal government lost 4,000 jobs. Monthly employment gains over the previous 12 months averaged 158,000 so this month shows an uptick over trend.

However, it’s important to not focus too much on one month’s report and to remember that the true picture of the labor market comes from looking across several key indicators. This is particularly true today as wide ranging new tariffs on US imports were implemented only this week, which will create uncertainty about the economic outlook over the coming months. 

Here are some key metrics to track where some are showing improvements over time and others a marginal deterioration:

Unemployment Rate: the unemployment rate edged up marginally to 4.2 percent. This is well above 3.9 percent a year ago. Across demographic groups, men and women had unemployment rates of 3.8 percent and 3.7 percent respectively. However, there were larger differences across Whites (3.7 percent), Blacks (6.2 percent) and Hispanics (5.1 percent).

Number of Unemployed: the number of unemployed is currently at 7.1 million relative to 6.5 million a year ago. Within this group, those unemployed for longer than 27 weeks (long-term unemployed) is at 1.5 million. This is up from 1.3 million a year ago. The long-term unemployed are 21.3 percent of all unemployed.

Labor Force Participation: LFP is currently at 62.5 percent which is lower than pre-Covid. In February 2020, LFP was 63.3 percent.

U-6 rate: this rate captures three categories of people (1) total unemployed, (2) all persons marginally attached to the workforce (wanting work but have not looked for work in the previous 4 weeks), and (3) total employed part-time for economic reasons (people who prefer full-time work but have settled for part-time work). The U-6 rate is at 7.9 percent up from 7.3 percent a year ago. During COVID, in April 2020, this was at 22.9 percent.

Wage Growth: Average hourly earnings have increased by 3.8 percent year on year. With inflation at 2.8 percent, this suggests workers are seeing real wages growing.

This snapshot suggests that while the labor market appears decently healthy, the economy is heading into a period of high economic uncertainty. Monitoring these metrics and responding early to softness in the labor market will be critical to maintaining a healthy economy.