A test of the labor market's resilience

April 1, 2024

Firms that typically hire up during the holiday shopping season did not do as much as they usually do at the end of 2023. Large retailers and transportation and warehousing are in that group. That meant fewer layoffs than usual at the start of the year, which boosted the pace at which firms appeared to hire at the start of the year. The seasonal adjustment tends to get more difficult as we move into Spring, when hiring tends to pick up. Those shifts could make March a test case for just how resilient the labor market is.

We estimate that payroll employment rose by 220,000 jobs in March, slightly faster than the consensus for the month. Public sector hiring is expected to account for 45,000 of those gains, buoyed by hiring at the state and local levels. Job openings outside of education were still elevated at the start of the year, while state and local governments' coffers remained flush with cash. Compensation in the public sector finally started to rise at a faster pace than private sector compensation during the second half of the year, which helped attract more workers into the public sector.  

Private sector payrolls are expected to rise by 175,000, driven once again by gains in healthcare and social services. The sector has been scrambling to hire up after a wave of retirements and burnout following the pandemic. Aging demographics, including millennials, who are now having families, long COVID and a drop in quit rates, which has boosted the use of existing healthcare benefits, are adding to the demand for healthcare and social services. Childcare is included in that mix. That is in addition to a mental healthcare crisis that still haunts us from the pandemic. Absences among school-age children soared since reopening, even in school districts which reopened earlier than others. We have lost an ability to do some of the most basic of human needs: congregate and learn with one another.

Hiring in leisure and hospitality should be another driver of job gains. TSA throughput for March remained well above 2019 levels, while food services were a major driver of new business formation in the second half of 2023. We saw a lot of restaurants moving to the suburbs from urban areas, which should provide a boost to hiring this year. An influx of migrants has also eased some of the worker shortages that we saw earlier in the cycle and made it easier for unstaffed restaurants to hire up.

In January and February, we saw some broadening of hires outside of the big three: state and local governments, healthcare and leisure and hospitality. Much of that reflected a lack of firing rather than scaling up. March could test whether the broadening continues, notably in retail and transportation and warehousing. Construction is expected to add jobs, although the seasonals are tough. Construction activity in the single-family housing market remains particularly resilient.

Average hourly earnings are expected to rise 0.2%, a little faster than we saw in April. That translates to a 4% year-over-year gain, which would be the weakest that we have seen since June 2021. The key is hours worked, which could tick up again during the month and boost average weekly earnings a bit. Watch for the effect of the rise in the minimum wage in California to show up in the next month's data. The minimum wage for the state rose to $20 per hour.

Separately, the unemployment rate is expected to hold steady at 3.9%, although there is some downside risk. Much of the rise in unemployment last month was due to an unusual increase in unemployment among 16-24 year-olds. The household survey, which includes the unemployment rate, has been running much weaker for employment gains than the establishment survey and needs to show a catch-up; if it doesn't soon, we may be in for some large, downward revisions to the payroll data.

Parental leave and the numbers of those out due to childcare problems are expected to remain elevated in March, as are those not at work due to vacations. Thankfully, those out due to illness have receded quite a bit over the last year. Exhale.