Strong showing by the labor force in March

The U.S. economy continued to add jobs at a healthy pace in March. Non-farm payrolls rose by 215,000 while private sector hiring expanded by 195,000. The unemployment rate rose to 5.0%, but for all the right reasons. The labor force grew 396,000, outpacing job creation, and thus pushing up the jobless rate. The labor force participation rate rose to 63.0% of working age adults, the highest in two years. Average hourly and weekly earnings both rose 0.3% month-over-month. On a year-over-year basis, hourly earnings accelerated to 2.3% from 2.2% last month.

The modest acceleration in wage growth in March is encouraging. While wage growth may not be as strong as some would like, there are structural factors at play. An aging population tends to reduce wage growth as workers at the top end of the pay scale leave the labor market and are replaced by newer workers at the lower end. In addition, a relatively low rate of labor productivity is also weighing on earnings. The employment-to-population ratio climbed to 59.9% and was up 0.6 percentage point since October. This is a proof that more Americans are working.

The rise in the labor force participation rate over the past six months has been truly astounding — the strongest in over two decades, suggesting that the job market is finally pulling discouraged workers off the sidelines. Increasing labor force participation may not stall the Federal Reserve from raising interest rates, but it will ensure the rate of increase is very gradual.