U.S. Jobs & Labor Report: March 2023

A year into the Federal Reserve’s aggressive rate hiking cycle, there are still few signs of weakness in the U.S. labor market. Job growth is strong, unemployment is extremely low and few Americans are reporting lost pay or income. However, recession risks remain. Rapid interest rate hikes have historically been successful at putting the brakes on an overheated economy, but it takes time for this to occur as higher borrowing costs make their way through the economy, cooling investment and consumption. The lingering effects of the pandemic’s upheaval of the labor market, including a structural reallocation of workers and the reluctance of employers to shed workers after struggling to hire during the pandemic, may mean that this time really is different. However, tighter financial conditions and reduced investment are still likely to weigh on demand for workers, slowing job growth and increasing unemployment. Last month, we placed a 50% probability on a job growth contraction over the next three to six months — and while Morning Consult’s proprietary labor metrics continue to flash green, we maintain our view that 2023 will severely test the U.S. labor market’s resilience. A soft landing remains possible, but even a relatively small increase in the unemployment rate could entail millions of Americans losing their jobs.

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