The surprising expansion of the US labor market is largely concentrated in government, education and healthcare employment as gains stagnate for more traditionally white-collar jobs in technology, finance and other professions.
Over the past two years, governments, private education and healthcare providers have added about 3.3 million people to their payrolls, accounting for nearly half of all job growth in the US over that stretch, according to the latest US Bureau of Labor Statistics data. Meanwhile, jobs in the information, financial activities and professional services sectors have contributed just 1% of the nearly 7.3 million jobs added over the past two years.
Economists said the uneven expansion of the market was likely caused by the severe imbalance between labor supply and demand as the US economy emerged from the pandemic. The government sector is likely catching up with hiring they were unable to do when the private sector was luring workers to millions of open positions with higher pay. Still, wage growth — a key focus in the Federal Reserve's battle against inflation — appears to be greatest in some sectors with the smallest employment increases as pay hikes have lagged in industries growing the fastest.
"Private sector was able to pay up and recruit quickly and are at the levels they need to be — hence the slowdown over that past year," said James Knightley, chief international economist with ING. "But sectors less able to pay high salaries have struggled to recruit. Now, there is a bit more slack they can backfill without too much upward pressure on pay."
Job market booms
The US added 303,000 jobs in March, about 100,000 more than economists expected, the Bureau of Labor Statistics reported April 5.
Private education and health services added 88,000 jobs, and government agencies added 71,000 jobs. The two sectors accounted for more than half of the job growth in March.
The information sector, which includes telecommunications and data processing, recorded no net job growth in March and has lost 37,000 jobs over the past year. Financial activities employers added just 3,000 jobs in March and have lost a net 7,000 jobs since the start of the year. Professional and business services companies added 7,000 jobs in March after losses in four of the previous eight months.
No sector lost jobs in March, a sign of strength throughout the domestic labor market, said Nick Bunker, economic research director for North America at Indeed Hiring Lab.
"Many sectors are adding jobs, it's just that there are a few sectors that are adding a large share of them," Bunker said. "I don't think that's necessarily a bad sign."
Wages rise
Annual wage growth fell to 4.1%, from 5.9% in March 2022 when the Fed first began raising rates to slow soaring inflation. Unemployment hit 3.8% in March, down from 3.9% a month earlier but slightly up from 3.6% in March 2022 as the labor force has gradually expanded.
Hourly wages in the financial activities sector increased 5.8% from March 2023 to March 2024, the biggest annual rise of any sector. Wages in manufacturing, which added no jobs in March and lost 10,000 jobs in February, increased 5.4%. Wages in private education and health services increased just 2.9%, below the 4.1% average for all private sector jobs.
"The slower wage growth in industries hiring more robustly recently could reflect the relatively large influx of new workers, who start at a lower pay-point than more tenured employees, thus weighing down the industry average," Sarah House, a senior economist with Wells Fargo, said in an April 5 note.
The strength of the labor market may prevent the Fed from cutting rates this summer and may help keep the US out of a recession, said Jack McIntyre, a portfolio manager with Brandywine Global.
"The labor market is still strong," McIntyre said. "Maybe it's uneven, but the general tide is still for a pretty strong, stable employment market."