The job market has been remarkably strong despite high inflation and the Federal Reserve’s aggressive interest rate hikes.
Employers added 311,000 jobs in February and an average 351,000 a month in the most recently tracked three-month period, up from 321,000 the prior three months.
Economists expect the Labor Department on Friday to report a pullback to 240,000 job gains for March, though that would still be a solid tally.
But beneath the surface, a historic surge in employment is showing signs of petering out.
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Are jobs increasing or decreasing?
Typically, when jobs are growing briskly, the number of industries adding positions soundly tops the number shedding them.
About 60% of 250 U.S. industries add jobs each month while 40% lose jobs — on average, over time — based on a closely watched gauge dubbed the “diffusion index”, estimates Dante DeAntonio, an economist at Moody’s Analytics.
As the nation notched its strongest job gains in history in 2021 and 2022 (averaging 605,000 and 400,000 a month, respectively) while climbing back to its pre-pandemic payroll level, the percentage of industries adding positions averaged in the 70s. It peaked at an all-time high of 84.6% in February 2022, when employers added a blockbuster 897,000 jobs.
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Are layoffs becoming more common?
This past February, however, the portion of industries adding jobs fell to 56% from 68% the previous month. That’s the lowest share since April 2020, the early days of the pandemic, and it marks the third-largest annual decline in the index (28.6 percentage points), behind only the COVID recession and the Great Recession of 2007-09.
Most economists are forecasting a mild recession this year, with modest job gains, but some expect a few million job losses.
The index can be a sign of things to come because strength or weakness in the labor market and economy can spread from one sector to another. The Great Recession began with job losses in housing and finance but as people lost their homes, construction workers were laid off and banks stopped lending, the pain extended to almost every other industry.
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“As things are going south, you get the tide going in the other direction,” DeAntonio says. “The weakness spreads.”
What industries are cutting jobs?
Since last year, industries particularly sensitive to Fed rate hikes have lost jobs, such as technology and housing. In February, the losses expanded. Manufacturing and transportation/warehousing shed 4,000 and 21,500 positions, respectively, their first payroll losses since April 2021 and a likely byproduct of consumers shifting their purchases from goods to services as the health crisis eased.
The financial sector lost 1,000 jobs for the first time in two years in a possible fallout from the Silicon Valley Bank crisis, as well as higher interest rates.
Leisure and hospitality, professional and business services, and health care remain among the strongest job gainers. But they may be starting to see pockets of weakness. Amusement parks and arcades lost jobs early this year after a long string of advances, according to Moody’s and Labor Department figures.
That said, February’s sharp annual decline in the share of industries adding jobs could be a blip. After all, the index hit a record high a year earlier because of the pandemic-related recovery and was bound to give up some ground, DeAntonio notes.
Still, the low overall reading and the drop from January were both noteworthy.
If the share of industries growing jobs in March remains weak or declines further, it could be a hint of further trouble ahead.