Despite inflation surging to a four-decade high and consistent predictions of an impending recession from Wall Street, Americans are getting back to work as COVID-19 cases and related restrictions fade across the country.
The U.S. economy added 431,000 jobs in March, and the unemployment rate fell to just 3.6%, the Bureau of Labor Statistics reported on Friday.
Although it was short of the consensus expectations of 490,000 by the top Wall Street banks, economists were quick to praise the robust employment figures.
Bank of America Research analysts called the labor market recovery “nothing short of remarkable” in a note to clients after the release, saying, “the unemployment rate fell for good reasons as robust labor demand continues to outpace supply growth.
“Stepping back, it is highly unusual to get this kind of momentum in the jobs market when the economy is already at full employment,” the analysts led by Stephen Juneau added.
Heidi Shierholz, president of the Economic Policy Institute and former chief economist at the Department of Labor under President Barack Obama, told Fortune the labor market has seen “mind-bogglingly fast and sustained growth” that is “totally unlike the Great Recession and its aftermath.”
The U.S. economy has added an average of more than half a million jobs each month since the beginning of 2021—and 562,000 per month this year—pushing the overall employment to just 0.1% short of its pre-pandemic level, Fed data shows.
With the economy nearing so-called peak employment, what’s next for the labor market? Is this as good as it gets, or can jobs be created at an even higher rate?
Here are three key takeaways from Friday’s jobs report and what economists predict will happen moving forward.
Not a recessionary jobs report
Top minds on Wall Street have been sounding the alarm over a possible recession for months now.
In an ominous warning last week, billionaire investor and hedge fund titan Carl Icahn said he thinks “there very well could be a recession or even worse” in the coming months. And former New York Fed president William Dudley warned a recession is “inevitable” in a recent Bloomberg op-ed, citing the increasing potential for a Federal Reserve policy mistake.
After Friday’s jobs report, Justin Wolfers, a professor of public policy and economics at the University of Michigan, said what he’s seeing is nowhere near what typically happens prior to a recession.
“I’ve had folks in the media calling me all week about whether the U.S. economy is headed for a recession,” Wolfers wrote on Twitter. “Umm…we’re creating around half a million jobs per month, and monetary policy is still expansionary. No, this is not recessionary. At all.”
Workers in ‘prime age’ finding jobs at a pre-pandemic clip
So-called prime-age workers, those between 25 and 54 years old, have seen incredible employment recovery in recent months, Shierholz pointed out to Fortune.
The economist said the prime-age employment figure is probably the most important indicator of the health of the labor market, calling it her “desert island measure.”
“If I had one measure to get a sense of what’s going on in the labor market, it’s prime-age employment,” she said, adding that it is the perfect indicator of the “unbelievable” strong jobs recovery the U.S. economy has seen over the past year.
The prime-age employment ratio jumped to 80% in March, just half a percent away from what it was prior to the pandemic.
A slowing pace of wage recovery
Friday’s jobs report also revealed average hourly earnings increased 0.4% in March and roughly 5.6% over the past year. That’s an improvement from February’s 0.1% hourly earnings gain, but a dip compared with the average over the previous six-month period of 0.5%.
While wage growth has been impressive over the past six months, recent wage increases haven’t been enough to keep pace with February’s 7.9% inflation figure. Nick Bunker, an economist at Indeed, said on Twitter that wage growth is showing clear signs of leveling off, but at a high rate of around 6%.
Looking ahead
Some top investment banks are warning that we may be seeing peak employment levels which could lead to falling jobs numbers over the coming months.
Goldman Sachs’ economist, Jan Hatzius, told the New York Times he expects the pace of hiring to slow to 200,000 per month by next quarter and warned it could even slip further from there.
On the other hand, Shierholz said she expects the current “strong recovery will only continue,” even if there is a mild slowdown in hiring.
“It’s not yet mission accomplished. The recession left a huge hole,” Shierholz said, pointing out the total gap in the labor market right now is around 4 million to 6 million jobs. “But that gap is closing astonishingly fast.”
The former Obama administration economist argued that the one thing that could throw a wrench in the recovery would be a Federal Reserve policy mistake. If Fed Chair Jerome Powell decides to raise rates too quickly, then the jobs recovery could be severely affected, she warned.
“We want them to have Fed policy that helps keep inflation in check while still keeping its eyes on the prize—extremely low unemployment by the end of the year,” Shierholz said.
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