Job increases expected again in March. What to look for in Friday’s report

March’s nonfarm payrolls count will likely indicate that hiring will continue at a brisk pace, although some weakening labor market underpinnings may come into sharper focus when the Labor Department releases its key report Friday morning.

According to the Dow Jones consensus forecast, job growth is expected to be at 200,000 for the period in question. If this is correct, it will mark a slowdown from the 275,000 initially reported in February, but it is still a high pace in historical terms.

Yet a funny thing has happened with jobs reports recently: Initially strong numbers have tended to be lowered in subsequent estimates, raising doubts about whether the jobs situation is as positive as it seems.

This will be just one of several key areas to focus on when the report is released at 8:30 a.m. ET.

The February release raised eyebrows with a gain that surpassed Wall Street’s outlook for 198,000 new jobs. Also attracting attention, however, were the revisions of the previous two months which reduced the December count from 43,000 to 290,000 and that of January by as much as 124,000 to 229,000.

For all of 2023, revisions have removed 520,000 units from initial estimates – there are three readings in total – bucking a historical trend in which final numbers are generally higher than early readings.

The trend “makes me wonder about the credibility of the first issue,” said Dan North, senior economist at Allianz Trade Americas. “So I’ll look at the previous month’s reviews to see if they’ll be dropped, and they most likely will be. That’s why if you get a high number, take it with a grain of salt.”

There’s some anticipation on Wall Street of an upside surprise: Goldman Sachs raised its initial forecast to 240,000, an increase of 25,000, following strong private payrolls data from ADP showing a gain of 184,000 for the month and other indicators.

In addition to the numbers, the composition is also important, i.e. where the growth is coming from and whether there are cracks in the employment armor. The resilience of the labor market has confounded many economists who have spent the last two years chasing a jobs-driven recession that never happened.

“Businesses are seeing strong demand. They’ve significantly increased their productivity, and so they’re hiring for different types of jobs,” said Luke Tilley, chief economist at the Wilmington Trust. “This allowed them to deal with the high-rate environment.”

However, there are areas of concern.

Household employment, which counts individual workers rather than total jobs and is used to calculate the unemployment rate, has fallen by nearly 1 million since November. The survey is more volatile and uses a much smaller sample than the establishment count that provides total payroll growth. But there is no obvious reason for this weakness, although some economists speculate that it could result in increased illegal immigration in recent years.

Additionally, full-time employment has declined slightly over the past year, while the rolls of part-time workers have increased by more than 900,000. There was also a sharp decline in temporary workers, a classic sign of a slowdown.

Federal Reserve officials will monitor all of these factors for signs of inflationary pressures. Stocks have come under pressure this week as investors worry about the direction of monetary policy.

Average hourly wages are expected to have risen 0.3% in March, a jump from 0.1% in February, although the estimate for annual earnings is 4.1%, or 0.2 percentage points in less.

If consensus calls are correct, it is unlikely to move the needle much for the Fed, which is expected to begin gradually cutting interest rates starting in June, according to futures market prices tracked by the CME Group.

“Unless there is an extremely positive or even tragic jobs report, they will stay the course,” North said. “They’ve been very clear recently in pushing back on the market, saying we’re not in much of a hurry, inflation isn’t down to 2%.”

North said he expects the Fed will wait until July before starting to cut rates, contrary to current market expectations.