Job Gains Keep Chugging Along

Article originally posted on CoStar on April 10, 2024

We’re getting accustomed to seeing robust job gains reported month after month, something we thought would not continue this long as the Federal Reserve keeps its policy rate high to slow the economy and rein in inflation impulses.

The economy added 303,000 jobs in March, according to the Bureau of Labor Statistics, exceeding forecasters’ expectations and bringing total job gains in 2024 to 829,000, the largest three-month increase since a year earlier. The unemployment rate ticked lower to 3.8%, extending to 26 months its streak of posting results below 4%.

Three industry sectors were responsible for almost two-thirds of the jobs added in March: education and health services, with another 88,000 positions — of which 81,000 were in health services; government, with 71,000 positions; and the construction sector, where specialty trades such as plumbers, carpenters and electricians accounted for the bulk of the new workers. The leisure and hospitality sector added 49,000 jobs, with hotels, bars and restaurants accounting for 32,000. Those firms have not yet recovered all the jobs lost during the pandemic as the industry has adopted alternative service delivery methods.

The surprisingly strong job gains prompted fears that competition for hiring workers among employers will accelerate wage growth and push inflation higher. Such a scenario has the Federal Reserve monitoring inflation closely on the services side of the economy, as that has remained stubbornly high. So far, however, that has not occurred. So-called “supercore” inflation is still moderating (albeit slowly), job openings remain plentiful and monthly wage growth has not accelerated.

While monthly job numbers are the most-watched indicator of the labor market’s health, findings from the household survey component of the monthly jobs report are also interesting. The labor force participation rate, or the share of the population that is employed or actively looking for work, rose from 62.5% in February to 62.7% in March while remaining below 63.3% in February 2020, before COVID-19 was declared a pandemic.

This is expected to slow as more retirees leave the workforce. The rising immigration rate into the United States could offset this trend.

In February, the Congressional Budget Office released its 2024-2034 Budget and Economic Outlook, revising its population projections over the next 10 years, citing higher estimates of net immigration and lower estimates of mortality rates than were previously incorporated into its forecasts.

Immigrants play a significant role in the labor market. According to the household survey, the foreign-born population represented 18.3% of the U.S. civilian population (ages 16 years and older), 19.2% of the labor force and 19% of those employed. These percentages are higher than a year ago because their growth has been faster than the native-born population. Last month, the foreign population had grown by 5.6% over the prior year, compared with the native-born population shrinking by 0.4%. The foreign-born labor force grew by 4.7% over the year, compared with the native-born labor force, shrinking by 0.2%.

The CBO notes that foreign nationals who arrive here are, on average, younger than the native population. Ninety-one percent of foreign nationals who migrate to the United States over the next 10 years will be younger than 55, compared with 62% for the overall U.S. population, which could further boost the overall labor force participation rate despite rising retirements.

Higher overall labor participation increases the supply of people to take jobs, which expands the labor pool and the workforce, and generally grows the economy. The increase in immigration has been suggested as one of the reasons the economy has been able to add more jobs than is usually considered noninflationary, and the economy has grown faster than expected without pressuring inflation.

A quick look at the updated Beveridge curve: the latest reading in February shows the job openings rate, or job openings as a percentage of jobs plus job openings, was 5.3%, unchanged from the prior two months but higher than the February 2020 rate of 4.4%. Meanwhile, the unemployment rate was 3.9%, compared with 3.5% in February 2020. The labor market has made significant progress over the four years since the pandemic began, and as job openings continue to slide lower, more progress appears possible.

What We’re Watching…

Of course, higher immigration rates also feed into the economy on the demand side. More people mean more demand for goods and services and more spending. One of the most significant drivers behind most economic forecasts that project a slowing economy is the moderation of population growth. This has been slowing for decades and as our population ages, it is expected to slow further, suggesting that economic growth will ease alongside. The sharp rise in immigration in the past two years has boosted overall population growth and may help forestall the growth slowdown economists expect. The multiple effects of the CBO’s revised estimates of immigration and mortality are well worth the read. Pages 50-51 provide a helpful summary.