The April 4 Bureau of Labor Statistics (BLS) jobs report was a welcome piece of good news amid an economic landscape characterized by extremely high levels of uncertainty and rising recession concerns. This data suggests the labor market continues to be remarkably healthy and resilient; however, given the lagging nature of labor market indicators and seismic shifts in U.S. trade policy, there is elevated concern that labor market conditions will deteriorate substantially in the months ahead. Keeping a close watch on new data as it comes in is increasingly imperative for employers, policymakers, and the general public.
Employment Gains Exceed Analysts’ Expectations
Total nonfarm employment increased by 228,000 jobs in March, significantly exceeding consensus expectations. Alongside the April 2 ADP private-sector employment report, these employment numbers suggest job growth remains strong in the private sector, despite an increasingly uncertain environment.
Total nonfarm payroll gains for January and February were revised downward in the latest BLS report, resulting in total employment gains falling by a combined 48,000 jobs in the first two months of 2025. Based on this updated information, total nonfarm payroll gains have grown at an average rate of about 157,000 per month during the 12-month period from April 2024 through March 2025.
Total nonfarm employment grew in 15 out of 25 major industries in March, as overall employment growth continues to be driven by job gains in health care and social assistance (77,800). For the third consecutive month, employment grew in transportation and warehousing (22,900). Other sectors that saw employment gains in March include accommodation/food services (30,600) and retail trade (23,700), reflecting work stoppages ending and workers returning after reaching labor agreements.
Overall government employment grew by 19,000 jobs, though employment gains were entirely concentrated at the state and local level, with local governments alone adding 17,000 jobs last month. A recent analysis from the global outplacement firm Challenger, Gray & Christmas suggests more than 216,000 announced job cuts in March stem from actions to reduce the size of the federal workforce. However, it will take time before the announced layoffs of federal civilian workers are reflected in official BLS job numbers. The BLS noted that employees who are on paid leave or receiving severance pay are counted as employed in its survey. Additionally, litigation is ongoing as several federal courts have ruled that thousands of federal workers should be reinstated, although the Supreme Court has halted the reinstatement of probationary workers across six agencies.
On the other hand, three sectors that experienced modest job gains in the previous report experienced employment declines between February and March. Employment fell by 3,000 in durable goods manufacturing and by 2,000 in wholesale trade. After gaining 8,800 jobs in February, employment in administrative and support services declined by 10,600 in March.
Unemployment Rate Ticks Up
Although labor underutilization rates remain low by historical standards, the U3 rate (i.e., the traditional unemployment rate) ticked up to 4.2% in March after increasing to 4.1% last month. However, after jumping up to 8% in February, the U6 measure of labor underutilization dipped back down to 7.9% in March.
While both rates are low by historical standards and consistent with a healthy labor market, it is currently extremely difficult to accurately measure current labor underutilization for several reasons (e.g., the uncertain extent of layoffs affecting federal civilian workers).
The U3 rate tracks the share of labor force participants who are jobless but able to work and actively seeking employment. The U6 rate includes people who are marginally attached to the workforce and those working part-time for economic reasons (in addition to the set of unemployed people captured in the U3 rate).
Wage Growth Moderates in March
Although the year-over-year growth rate in average hourly earnings started to climb during the latter half of 2024, the last several months suggest that this growth rate is stabilizing or even falling gradually. Year-over-year growth in average hourly earnings eased to 3.8% in March, its lowest level since July 2024 and slightly lower than consensus expectations. While this is an encouraging sign for employers concerned about rising compensation costs, rapidly changing trade policies have dramatically increased concerns about a pending rise in overall inflation.
Labor Shortage Persists
The unemployed-people-per-job-opening ratio (UJOR) held steady at 0.9, with the latest available data showing there were roughly 516,000 more job openings than there were unemployed people as of February. However, traditional labor market data in general, and the BLS JOLTS data in particular, do not yet capture the extent to which widespread layoffs of federal civilians and related job losses stemming from cancelled federal contracts/grants have changed the unemployment level. The UJOR value could rise notably in future months as these effects come into focus.
The UJOR is the ratio of the unemployed population (i.e., people without a job who are able to work and actively looking for employment) to the number of open jobs at a given point in time. When the value of this ratio is below 1, it means that even if every unemployed person could be immediately matched to an open job, there would still be unfilled positions at the end of this matching process. These conditions necessarily indicate a labor shortage in the overall labor market, though it is worth noting that other labor market frictions (e.g., skills mismatches between job seekers and open positions) can create a labor shortage even when the UJOR is above 1.
What Do These Findings Mean for You?
Available evidence suggests that the labor market has continued its remarkable run of health and resilience through March. However, there is ample and growing reason to believe this favorable picture could transform quickly as we move into the second quarter. Economic conditions are now changing rapidly, leading to escalating fear that the labor market and broader economy will deteriorate rapidly in the months ahead. In particular, job losses stemming from federal workforce and spending cuts could significantly drive up unemployment.
Inflation expectations have skyrocketed in recent days due to newly enacted tariffs and the rising threat of a global trade war, fueling concerns about depressed economic growth and a return to high inflation (i.e., stagflation). These developments have all contributed to an environment of almost unprecedented uncertainty, which is itself economically damaging. There are compelling reasons to expect that labor market conditions will evolve rapidly throughout 2025, reinforcing the need to closely track data as it becomes available.
Sydney Ross is an economic researcher at SHRM.
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