Today’s jobs report showed solid job growth in March, following strong growth in February. Employment in in-person services continued growing rapidly as concerns over COVID-19 and the impact of Omicron lessened. This jobs report underscores that the labor market is healthy and continues to strengthen. Still, wages continued to rise amid severe labor shortages, adding additional pressure on inflation. The Federal Reserve will likely not alter its plan for multiple rate hikes and balance sheet reduction in 2022 to address inflationary pressures.

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Nonfarm payroll employment increased by 431,000 in March, after an upwardly revised increase of 750,000 in February. The unemployment rate ticked down to 3.6 percent, and the labor force participation rate increased slightly to 62.4 percent, compared to 62.3 percent in February. Overall, employment is still down 1.0 percent compared to pre-pandemic (February 2020) levels, representing 1.6 million jobs. Job recovery has been slower for women, with employment still 1.5 percent below pre-pandemic levels, compared to 0.6 percent for men. Retirement of older workers may prevent the labor force participation rate from returning to pre-pandemic levels, though others may return as improving conditions and rising wages pull more people into the labor market.

Job growth continued to be strong in leisure and hospitality, which added 112,000 jobs in March. Retail trade added 49,000 jobs and manufacturing added 38,000 jobs. Compared to February 2020, however, employment is still down 19.9 percent in accommodation and 6.6 percent in food services and drinking places, indicating that in-person services industries have room to see additional job gains in 2022.

Average hourly earnings have risen 5.6 percent over the past 12 months, with an 11.8 percent increase in leisure and hospitality and a 7.9 percent increase in transportation and warehousing. Wages will continue to rise, especially in industries most impacted by labor shortages, as we anticipate 2.5 million more jobs to be added in 2022.

The job openings rate remained high at 7 percent in February, with severe labor shortages likely to remain throughout the year. The Conference Board Consumer Confidence Survey signals continued labor market tightness, with 57.2 percent of consumers reporting jobs as “plentiful” in March, a new record high. With solid job growth expected for the remainder of the year and participation rates only expected to slightly increase, the unemployment rate is expected to get close to 3 percent by the end of the year. This would be the lowest rate seen in decades. Labor shortages will continue, driving further wage growth.