U.S. Labor Market Tightens as Jobless Rate Falls to New Low Despite Payrolls Miss

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By Geoffrey Smith 

Investing.com -- The U.S. labor market tightened again in March with the jobless rate falling to a new post-pandemic low, even though the economy created fewer jobs than expected.

Nonfarm payrolls rose by 431,000 in the month through mid-March, well below consensus forecasts for a rise of 490,000. However, the shortfall was completely offset by an upward revision of 72,000 to February's data, bringing the previous month's gain to 750,000. 

As a result, the unemployment rate fell to 3.6% from 3.8% in February, a little below forecasts for 3.7%.  The U6 unemployment rate, which captures a broader range of under-employed people, also fell sharply to 6.9% of the workforce from 7.2%. Both numbers are the lowest since the start of the pandemic, although Oxford Economics analyst Greg Daco pointed out that the U.S. is still some 1.6 million jobs short of pre-Covid emploment levels.

"Despite the slight headline 'miss', revisions and stronger than expected unemployment and underemployment data make this a reasonable release," said the World Gold Council's John Reade via Twitter (NYSE:TWTR). 

Average hourly earnings also grew by more than expected, reflecting a further shift of the balance of power in the labor market toward workers. The U.S. economy had over 11 million vacant jobs in March, according to a survey released earlier in the week by the Labor Department. Earnings grew 5.6% on the year through March, their fastest rate since March 2020. 

Markets were relatively untroubled by the report, which broadly reaffirmed existing perceptions of the state of the economy. The dollar index quickly reversed its initial gains on the numbers to trade at 98.537, up 0.2% on the day. Likewise, the upward drift in U.S. Treasury bond yields continued but didn't gain any fresh momentum. By 8:50 AM ET (1250 GMT), the 10-Year U.S. Treasury yield was at 2.42%, up 1 basis point on the day.

That small movement was, however, enough to take it below the 2-Year Treasury note  yield, sparking fresh chatter about the shape of the yield curve. When short rates rise above long ones, it is generally taken as a signal of a growth slowdown or even a recession ahead. However, the spread between 3-Month rates and 10-year rates - seen by many as more important because the money used to fund many positions in the bond market is borrowed at very short tenors - remains clearly positive. A number of Federal Reserve officials have also flagged the need for the Fed to sell off its longer-date bonds more quickly, in order to keep that spread positive.