US employment growth likely rebounded from a 17-month low in March as milder weather boosted activity in sectors like construction, which could further allay fears of a sharp slowdown in economic growth in the first quarter.
Worsening worker shortages and lingering effects of tighter financial market conditions at the turn of the year, however, suggest the job gains probably remained below 2018’s brisk pace.
The Labor Department’s closely watched monthly employment report on Friday would follow on the heels of fairly upbeat construction spending and factory data that led Wall Street banks to boost their growth estimates for the first quarter.
Nonfarm payrolls probably increased by 180,000 jobs last month, according to a Reuters survey of economists. Investors will also be watching to see if February’s paltry 20,000 job count, the smallest since September 2017, is revised higher.
“A number that is close to consensus and with an upward revision to February will give you some degree of comfort that while the economy is slowing, it isn’t declining rapidly,” said Dan North, chief economist at Euler Hermes North America in Baltimore.
The economy has shifted into lower gear as stimulus from the Trump administration’s $1.5 trillion tax cut package as well as increased government spending fades. A trade war between Washington and Beijing, and slowing global growth have also taken a toll on the economy, which in July will celebrate 10 years of expansion, the longest on record.
Growth forecasts for the first quarter are between a 1.4 percent and 2.1 percent annualized rate. The economy grew at a 2.2 percent rate in the fourth quarter, stepping down from the July-September quarter’s brisk 3.4 percent pace.
Fears of an abrupt economic slowdown could also be assuaged by strengthening wage growth and a low unemployment rate. Average hourly earnings are expected to have increased 0.3 percent in March after jumping 0.4 percent in February.
That would keep the annual increase in wages at 3.4 percent, the biggest gain since April 2009. Strong wage growth could boost confidence that consumer spending would accelerate and support the economy, after consumption stalled in January.
WORKERS ARE SCARCE
The scarcity of workers is driving up wages. The unemployment rate is forecast unchanged at 3.8 percent in March, close to the 3.7 percent that Federal Reserve officials project it will be by the end of the year.
Though job gains have moderated from an average of about 223,000 in 2018, they remain above the roughly 100,000 per month needed to keep up with growth in the working-age population.
Economists say a strong employment report in March would suggest that financial market expectations that the Fed will cut interest rates this year were premature. The rate cut expectations gained traction when the U.S. Treasury yield curve briefly inverted in late March, reviving recession fears.
The U.S. central bank last month suspended its three-year campaign to tighten monetary policy, dropping projections for any interest rate hikes this year after increasing borrowing costs four times in 2018.
“If the recent weakness is only a soft patch and not quicksand, the Fed may surprise markets and decide to sharpen its monetary tools later this year, with a rate hike just in time for the holidays,” said Beth Ann Bovino, U.S. chief economist at S&P Global Ratings in New York.
There are roughly 7.58 million open jobs in the economy. This is despite the labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, having risen to the highest in more than five years at 63.2 percent.
“Up until now we have had people rejoining the labor force, which allowed businesses to hire people, especially at the unskilled and semi-skilled level,” said Sung Won Sohn, an economics professor at Loyola Marymount University in Los Angeles. “There are signs that well could be running dry.”
Economists expect job growth to average about 150,000 this year. Employment at construction sites is expected to have rebounded after falling by 31,000 jobs in February, the biggest drop since December 2013. Leisure and hospitality sector payrolls are forecast to have accelerated after stalling.
The manufacturing sector is expected to mark 20 straight months of job gains in March, the longest streak since the mid-1980s. But the outlook for the sector is less upbeat as motor vehicle manufacturers have announced thousands of job cuts to deal with slowing sales that have led to an inventory bloat.