U.S. jobs report beats expectations; Fed rate cuts are unlikely

The U.S. labor market rebounded in March, with payroll growth coming in well above expectations. However, the broader labor-market picture remains sluggish, and the report reinforced market expectations that the Federal Reserve will not cut interest rates this year.

Payrolls, revisions and unemployment

According to the U.S. Bureau of Labor Statistics (BLS) report released April 3, nonfarm payrolls rose by 178,000 in March, reversing a 133,000 drop in February and exceeding economists’ forecast of 59,000 new jobs in a Dow Jones survey.

February’s figure was revised down by 41,000 jobs, while January was revised up by 34,000 to 160,000. As a result, average payroll gains for the first three months of the year rose to about 68,000 jobs per month.

The unemployment rate eased to 4.3% in March from 4.4% in February. The change was linked to a sharp drop in the labor force rather than a broad improvement in employment conditions.

Labor force and household survey details

Much of the unemployment-rate movement reflected a decline of 396,000 in the labor force. The labor force participation rate for Americans aged 16 and over fell to 61.9%, the lowest since November 2021.

In the Household Survey, which is used to calculate the unemployment rate, the number of people employed fell by 64,000 from the prior month. A measure of unemployment that includes discouraged workers and those working part-time for economic reasons rose to 8%. Long-term unemployment remained elevated, though the average duration of unemployment fell to 25.3 weeks.

Job creation by sector

Healthcare continued to be a major contributor to job growth, adding 76,000 jobs in March. BLS data showed outpatient healthcare services rose by 54,000. Construction added 26,000 jobs, and transportation and warehousing increased by 21,000.

On the downside, the federal government shed 18,000 jobs, and the financial sector lost 15,000 jobs.

Wages and working hours

Wage growth came in weaker than expected. Average hourly earnings rose 0.2% in March and 3.5% year over year. Economists had forecast 0.3% for the monthly increase and 3.7% for the annual rate.

The 3.5% annual wage growth rate is the slowest since May 2021. Average weekly hours fell to 34.2 hours in March, down 0.1 hour from February.

Market reaction and rate outlook

After the jobs report, stock index futures fell modestly, while the bond market remained active and Treasury yields rose, reflecting expectations that the Fed will keep rates higher for longer. The U.S. stock market was closed for Easter on April 3.

FedWatch data from CME Group indicated virtually no move at the FOMC meeting on April 28–29 and about a 77.5% probability that the Fed would hold steady through year-end.

Analysis and outlook for job seekers

Heather Long, chief economist at Navy Federal Credit Union, said the March jobs data look somewhat positive but emphasized volatility in the labor market. She noted that from April last year to now, nonfarm payrolls have “hardly risen,” and that March data could keep the Fed in a wait-and-see mode. Long also said there is a real possibility that this spring could be difficult for job seekers.

The report arrives as the labor market changes and the economy needs fewer additional jobs to maintain overall employment stability. The St. Louis Fed estimated that nonfarm payroll growth of only 15,000 per month could keep the unemployment rate steady.

With inflation still above the Fed’s target and energy prices rising amid the Iran conflict, markets largely do not expect rate cuts this year. Prior to the U.S.–Iran conflict, markets had priced in two rate cuts in 2026.