Labor Force Participation Rate Ticks up but Still Below Pre-Pandemic Levels

Workers exit the Marathon Galveston Bay Refinery in Texas City, Texas on May 10, 2022. Brandon Bell/Getty Images

The U.S. labor force participation rate ticked up last month, but numbers are still below pre-pandemic levels.

The participation rate for March is now at 62.6 percent, according to the U.S. Bureau Of Labor Statistics (BLS), on April 7.

At the same time, the employment to population ratio edged up over the past month to 60.4 percent, which remains below pre-pandemic February 2020 levels, at 63.3 percent and 61.1 percent, respectively.

Meanwhile, the BLS report suggested that the U.S. economy and the job market remain on solid footing despite nine consecutive rate hikes by the Fed since last year to combat growing inflation.

The labor market also remains strong, according to the BLS report, with employers adding 236,000 jobs in March, but below the 326,000 gained in February.

The median unemployment rate projected for the end of 2023 by Fed officials at their March meeting was 4.5 percent, which would imply a steep spike in joblessness that would normally indicate a recession.

The unemployment rate fell to 3.5 percent in March, just below the 3.4 percent gain in January, while average hourly wages rose 0.3 percent last month, slightly more than February.

Fed To Likely Raise Interest Rates

The positive job growth figures may lead the Federal Reserve to continue raising interest rates for the next couple of months as policymakers conclude that the pace of hiring is putting upward pressure on wages and inflation.

A rise in the interest rate typically leads to higher rates on mortgages, auto loans, credit cards, and business loans.

The Consumer Price Index rose 5 percent annually as of February, or at 4.6 percent, excluding food and energy prices, well above the Fed’s target of 2 percent.

The Fed has been trying to achieve a soft landing, which would tame inflation just enough without causing the U.S. economy to tumble into recession, but most economists are skeptical of the central bank strategy.

The latest economic data suggests that a recession may be upon us, with U.S. manufacturing taking a downturn as overseas trade takes a hit.

The Institute for Supply Management (ISM), an association of purchasing managers, reported that manufacturing activity contracted in March for a fifth straight month.

The Commerce Department separately reported this week a decline in American exports and imports in February, in another sign that the global economy is slowing down.

A sign for hire is posted on the window of a Chipotle restaurant in New York on April 29, 2022. Shannon Stapleton/File Photo/Reuters

Services Sector Witness Growth

Two days later, the ISM said that growth in the services sector, which accounted for the vast majority of American jobs, slowed sharply last month.

“The services sector, in particular, has contributed substantially to recent inflation, reflecting ongoing imbalances in labor markets where supply remains impaired and demand remains robust,” wrote Kansas City Fed economists Karlye Dilts Stedman and Emily Pollard.

“Because service production tends to be less capital intensive and services consumption is less likely to be financed, it also tends to respond less quickly to rising interest rates. Thus, monetary policy may take longer to influence a key source of current inflation.”

The Kansas City Fed suggested that the services sector, which has driven recent wage growth and inflation, is not as sensitive to changes in monetary policy.

The service industries, which are responsible for most of America’s economic output, are also more labor-intensive and less sensitive to rate increases.

The retail and hospitality industries are still growing but have begun to also see a slowdown.

The collapses of two regional banks last month, combined with higher rates and tighter credit conditions, could further destabilize lenders and restrict borrowing and spending by consumers and businesses.

The global economy has for now been resilient despite ever-higher borrowing costs, while U.S. GDP continued to grow in the second half of 2022.