March jobs-report forecast: 200,000 new jobs and a 3.8% unemployment rate

By Jeffry Bartash

The Federal Reserve wants to see slower hiring and wage growth before cutting interest rates

The U.S. economy keeps chugging along and producing lots of new jobs. Wall Street expects another sizable gain in March, if somewhat smaller than in the prior month.

The big question for investors is: Will that move the Fed closer to cutting interest rates?

Following is what to watch in Friday's March employment report.

The headline number

The economy is forecast to show a gain of 200,000 new jobs for March, down from a preliminary 275,000 in the prior month.

Job creation has clearly slowed since last year, and fewer companies are hiring, but employment is still increasing faster than the historical average.

Until recently, Wall Street DJIA SPX economists estimated that the U.S. only needed to add 100,000 new jobs a month to keep up with the growth of the labor force and contain inflation. Yet an influx of immigrants has raised questions about whether that estimate is too low.

Still, the Federal Reserve would like to see hiring slow even further to reduce the upward pressure on wages and pave the way for the central bank to cut interest rates later this year.

Could the March report turn out to be a dud? It doesn't seem likely. ADP showed a sharper increase in private-sector jobs in March, and jobless claims still point to an extremely low level of layoffs.

Unemployment rate

The jobless rate rose in February to a two-year high of 3.9%, but the increase was largely concentrated among workers under age 24. Economists doubt that unemployment really rose.

The unemployment rate is forecast to have slipped to 3.8% in March, leaving it near a half-century low.

The Fed itself does not think the jobless rate will go much above 4% even if the economy slows significantly.

Wages

Wages grew more slowly in February after a spike in the first month of the year. Still, pay has risen 4.3% in the past year, and the trend has hardly changed since last November.

Fed officials want wage growth to slow to a level viewed as consistent with low inflation - generally seen as 2% to 3% a year.

Hourly wages are forecast to show a March rise of an above-average 0.3%.

The yearly rate of wage gains could slip to 4.1% from 4.3%, putting it at the lowest level since June 2021.

Survey says ...

A big discrepancy has opened up between the two surveys the government uses to compile the jobs report.

The so-called establishment survey, which polls businesses, shows that the U.S. has created 1.4 million jobs in the past six months. This survey is used to produce the headline increase in new jobs each month.

A separate survey that polls households is mainly used to determine the unemployment rate, but it has its own measure of job creation. The household survey shows that the economy has lost 532,000 jobs in the past six months.

The establishment survey is more accurate over time, but sometimes the household survey is a better indicator of broad shifts in the labor market.

Most economists are not buying what the household survey is showing, though. "If employment in the household survey is correct, the economy is already in recession," economists at Bank of America said. "We think establishment payrolls are sending the correct signal about employment trends."

Fed reaction

Any combination of much slower job creation, a higher unemployment rate or weaker wage growth would be viewed as strengthening the case for the Fed to cut interest rates this year. Markets could react positively.

A strong jobs report, on the other hand, could widen the odds of a Fed rate cut as early as June. That's when investors are betting the first cut will take place.

-Jeffry Bartash

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04-05-24 0619ET

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