The U.S. economy added a record 303,000 jobs in March, the latest report showed, adding to the picture of a strong labor market that continues to drive down interest rates and higher prices.
However the job market may not be as hot as it looks.
Professional and business services — a busy sector that includes many white-collar jobs — added a meager 7,000 jobs last month and created just 71,000 positions since June last year. This number was boosted by the earnings of 48,000 people in January.
Economists have questioned the employment totals for the month because of the difficulties the Labor Department faces at the beginning of the year as it prepares the statistics for its monthly survey.
During the same eight-month period in 2022 and 2023, professional and business services added 275,000 jobs.
The downturn could be a troubling sign for the economy and the labor market because professionals receive the highest salaries and provide the biggest stimulus to consumer spending, says economist Agron Nicaj of MUFG Bank.
Which industries experienced job gains?
US job growth, in fact, has mainly been driven by just four major agencies since the crash – government; health care; recreation and hospitality; and construction. Local governments and leisure and hospitality – which includes restaurants and bars – are still reaching their pre-crisis levels of activity. Health care has been boosted by an aging baby boomer. And construction employment has been boosted by a severe housing shortage and reduced housing affordability.
Analysts say it is not enough to rent juice in the coming months.
“How long can two to four industries sustain economic activity in the United States?” Nicaj asks.
How does the jobs report affect interest rates?
There may be a silver lining to the soft job market. Reports last week revealing stronger-than-expected job growth and higher-than-expected inflation caused futures markets to push back expectations for the Federal Reserve’s first interest rate cut since June to September. And its forecast for three rate cuts this year has been cut to two. If job growth slows, it could help convince the Fed to cut rates sooner, assuming inflation continues to moderate.
Which jobs are shrinking?
Other major sectors have also turned in slower job growth from mid-2023, or more in some cases, but they are also being weighed down by industry-specific factors. Financial activities are hampered by high interest rates; the information industry, with a major recession in technology after over-employment during the pandemic; and productivity, with consumer spending shifting from goods to services since the end of the health crisis and with high rates discouraging business investment.
Professional and business services, however, include 23 million workers in a variety of different fields, including law, accounting, design and marketing firms; HR consulting companies; temporary staffing agencies; travel agencies; and office management services.
In other words, it bodes well for the US economy. If the economy is doing well, so are professional services.
Why is it so hard for white people to get a job now?
Much of the white-collar hiring deficit can be traced to temporary service jobs, which fell by 181,000 last year. Typically, companies lay off part-time workers before they let go of their permanent workers, so a large layoff will produce future job growth, Nicaj says.
But economist Dante DeAntonio of Moody’s Analytics points out that temporary firm earnings have been falling for two years. He says that companies relied heavily on temporary agencies when they could not find permanent workers during the epidemic, so their wages are returning to normal when the shortage of workers is reduced.
Noting that union wages for temporary workers have fallen below pre-pandemic levels, he also suggests that the labor shortage may give temporary workers the power to ask their companies to they convert to regular workers.
But, he adds, “It is not clear whether this is sufficient to explain the pattern.” He says that it is possible that the return to the work of part-time workers also indicates that there are more opportunities to come.
What jobs are at risk?
Temporary help is not the only industry within professional services that is eliminating or downsizing, says Nicaj. In the past year, work has shifted to marketing and HR firms and down to business support services, such as call centers. As of July, earnings have remained flat in management consulting services.
As the economy remains uncertain, many companies are likely to reduce their use of services such as HR and marketing and outsource those functions to in-house staff to save money, says Nicaj.
In the summer and early fall, professional and business services lost jobs for four straight months, a streak that often indicates a continuing recession, Nicaj says. He says that’s not the case at the moment, because at least the lack of employment can be traced back to a labor shortage rather than a lack of employer demand. In February, the gap between job openings and employment was wider for professional services than for US industries overall, he says.
However, he says, employer demand for office workers is also declining.
‘I will be very careful’
Adam Morris, CEO of SalesFirst Recruiting, says orders for salespeople, account managers and marketing professionals are falling and the Portland, Oregon-based company has seen sales decline over the past year. He says the drop is due to the adjustment after the post-pandemic activity explosion and hiring in 2021 and 2022.
Billing your parents on your taxes?Can I claim my parents as dependents? This tax season, many Americans choose to file
Morris says that applies to his recruiting firm as well. He has 13 employees, down from 20 or so by 2022 because he decided not to replace those who left last year. So far this year, the business has made little progress and he plans to expand his workforce but cautiously.
When he said that he does not think it is appropriate to hire workers just to let them go, Morris says, “I will definitely hire one to two people. I will be very careful after that.”
#job #gap #report #suggests #potential #weakness #labor #market
