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Jobs report: March data to show hiring slowdown, growth likely 'too high' for Fed

The March jobs report to be released Friday is set to show another slowdown in the U.S. labor market, though hiring will likely remain robust even as the Federal Reserve continues to raise rates in a bid to slow the economy.

Wall Street economists expect nonfarm payrolls grew by 239,000 last month with the unemployment rate set to hold steady at 3.6%, according to data from Bloomberg.

In February, the economy added 311,000 new jobs while the unemployment rate rose to 3.6% amid an uptick in participation. Friday's jobs report will be released at 8:30 a.m. ET. Financial markets in the U.S. will be closed on Friday, however, for Good Friday.

Investors will also closely watch wage growth, with average hourly earnings expected to rise 0.3% over the month and 4.3% over last year. In February, wages rose 0.2% over the prior month and 4.4% over the same month last year.

February's jobs report served as a firm-enough signal for the Fed to proceed with a planned interest rate hike on March 22. Those figures dropped just hours before Silicon Valley Bank was seized by regulators, however, with Signature Bank also closed by regulators two days later on Sunday, March 10.

Notable impacts from the bank crisis, however, aren't expected to feature in Friday's report.

"The March report comes too early to capture much impact from the recent banking sector woes, with the troubles at SVB not coming to a head until near the end of the survey period," wrote Andrew Hunter, deputy chief U.S. economist at Oxford Economics, in a note last week.

Instead, most on Wall Street will be looking toward whether this report argues for another 0.25% rate increase from the Fed next month. Data from the CME Group as of Thursday afternoon showed markets pricing in a 50-50 chance the Fed either elects to hold rates at current levels or increase the target range for its benchmark rate by another 0.25%.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, expects nonfarm payrolls grew by 250,000 last month and wrote in a note to clients on Thursday this number would be "too high for the Fed."

"FOMC members continue to worry that such rapid job growth will push the unemployment rate to new lows and/or prevent wage inflation from slowing to a pace consistent with the inflation target," Shepherdson added.

In a press conference last month, Fed Chair Jerome Powell called the labor market "very tight" as average monthly job gains in the six months through February stood at 343,000.

Friday's report does come, however, after data on initial jobless claims on Thursday and private payroll data from ADP out Wednesday suggested the labor market is cooling.

Initial claims are seen as the best real-time indicator of stress in the labor market; this measure has shown some signs of increasing in the last few months, with claims totaling 228,000 last week. ADP's report out Wednesday morning showed there were 145,000 jobs added to the private sector last month, below expectations.

"Our March payroll data is one of several signals that the economy is slowing," said Nela Richardson, chief economist at ADP in a press release. "Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down."

Earlier this week, job openings data for February also showed open roles in the economy continue to fall, another potential signal the labor market is slowing. February marked the first time since June 2021 there were fewer than 10 million jobs open as of the end of the month.

Still, some economists were quick to note that while job openings are on the decline, overall hiring demand remains well above pre-pandemic levels.

"Openings remain noticeably above the highs of prior cycles," wrote Wells Fargo economists in a note to clients following Tuesday's JOLTS report.

"At the same time, and despite the steady drumbeat of layoff announcements in recent months, businesses still seem fairly keen to hold onto workers. The layoff and discharge rate dipped back to 1% in February, compared to an average of 1.2% over 2018-2019."

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