Over the past couple of weeks, setting aside the recent stock market volatility, the incoming economic data have leaned positive. The main takeaway is that the Federal Reserve will likely push back any rate cuts that were previously expected.
The biggest positive surprise came from the monthly jobs report. The consensus forecast called for an increase of 60,000 jobs, but the economy added 178,000. Private sector job growth was even stronger, with 186,000 jobs added. The unemployment rate declined to 4.3%.
One sector that has been shedding jobs showed a modest pickup. Manufacturing added 15,000 jobs, another sign that the sector may be seeing some green shoots after a couple of years of contraction.
It was not all positive, however. The labor force participation rate declined by one-tenth of a percentage point, and the labor force itself shrank by nearly 400,000 workers. Payroll revisions for January and February showed 7,000 fewer jobs than previously estimated.
And, similar to recent trends, a large share of job growth continues to come from healthcare. That is not necessarily a negative, but it does highlight that job growth outside of healthcare has slowed considerably. Since 2024, job growth in all other sectors combined is down more than 300,000 jobs, while healthcare employment has increased by nearly 900,000. The broader economy’s job engine, outside of healthcare, remains stuck.
Job openings declined from the prior month but came in slightly above expectations. Hiring, however, dropped sharply, with hires falling significantly from January levels. Excluding the COVID shock, this marks the steepest decline in hiring since the series began in 2000. In fact, hiring did not fall as sharply during the Great Recession as it did in February of this year.
While February represents only one data point, the magnitude of the decline provides further evidence of what has been described as a “no hire–no fire” economy. The gap between unemployed workers and job openings has widened, suggesting that the job market is becoming more competitive for those seeking employment. At the same time, layoffs, as measured by weekly unemployment claims, remain at very low levels.
We have discussed signs of improvement in manufacturing in recent weeks, and those signals continue to emerge. The latest ISM (Institute for Supply Management) manufacturing report showed additional expansion in March, marking three consecutive months of growth. Both new orders and production increased, pointing to a more positive trajectory for the sector.
However, the ISM report also indicated continued contraction in manufacturing employment. While the March jobs report showed a gain in manufacturing jobs, Eye on the Economy does not expect a surge in manufacturing employment, even with potential reshoring as supply chains adjust to ongoing trade policy uncertainty. Moving production from lower-cost regions to higher-cost environments does not necessarily translate into increased payrolls. To remain globally competitive, manufacturers will likely rely more on capital investment and automation. This is positive for the U.S. economy, but not necessarily for employment growth in that sector.
Recent data move us further away from an imminent recession, but stagflation remains a risk. Inflation continues to prove sticky, and with energy prices on the rise, price pressures may persist.
