The U.S. economy added 431,00 jobs in March and the unemployment rate fell to 3.6 percent, the Department of Labor said Friday.
Economists had expected the economy to add 490,000 jobs and the unemployment rate to tick down to 3.7 percent from 3.8 percent. The range of forecasts by economists surveyed by Econoday was between a gain of 200,000 to a gain of 700,000.
The shockingly high figure for February was revised even higher. Now the economy is estimated to have added 750,000 jobs in February, up from the 678,000 initially reported.
The economy rebounded from the pandemic much faster than expected. The labor market, in particular, quickly recovered much of the damage done by 2020’s lockdowns and social distancing, with the unemployment rate dropping much faster than expected. Demand for goods soared as American incomes were pumped up with stimulus money from various government programs and social distancing rules left people bereft of many of the leisure services activities–sports, concerts, travel, movies–that typically would have drained bank accounts.
The supply side of the economy could not keep up with the shift into spending on goods, especially with many exporting countries also struggling with the pandemic. China’s ports have suffered a series of closures under the country’s zero-tolerance policy for Covid. Various stages of the global supply chain to build semiconductors have also broken down, creating shortages that forced makers of everything from cars, to appliances, to phones to slow production.
Thanks to unusual trade imbalances shipping containers scarce in some places while containers sat empty in others. But even as that was resolved, U.S. ports around Los Angeles were overwhelmed with incoming ships, forcing long delays. U.S. companies, fearful of shortages around the holidays, scrambled to fill shelves and warehouses early and warned consumers to do their shopping early.
Despite the signs that the demand side of the economy had recovered and the supply side was straining, the Federal Reserve continued to keep rates low, fearful of repeating past mistakes of withdrawing economic support too early. Similarly, the Biden Administration and Democrats led by House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) pushed through an enormous spending program called the American Rescue Plan.
The result: an explosion of inflation that Fed policymakers and Biden administration initially insisted would be transitory. But as the supply chains remained stressed and prices continued to climb last year, Fed officials abandoned the word transitory and scrambled to pivot to an inflation-fighting stance. By the end of the year, inflation was running at seven percent, the highest in nearly 40 years.
Looking to get inflation under control, Federal Reserve chair Jerome Powell and his fellow Fed officials have signaled that they will raise their target interest rate above the zero to 0.25 percent range that has held since the pandemic struck. In congressional testimony this week, Powell signaled that he would support a hike of one-quarter of a point, to a range of 0.25 to .5, at the Fed’s next meeting in mid-March and would be open to even larger hikes if inflation remains elevated.