Leading economist cautions: The jobs report appears positive for the wrong reasons—it hides how many Americans are giving up

(SeaPRwire) –   In March, the U.S. economy gained 178,000 jobs, and the unemployment rate dipped to 4.3%—a performance that exceeded economists’ forecasts and brings a glimmer of hope following a surprisingly dismal year for employment. 

“March’s jobs report shows the economy still has a pulse—but it’s not racing,” Gina Bolvin, president of Bolvin Wealth Management Group stated in a note.

But don’t grow complacent, warns Diane Swonk, chief economist at KPMG.

“The unemployment rate dropped, but for the wrong reasons: a loss in labor force participation,” Swonk told . These decreases were focused on men in their prime working years (20s to 30s), young women aged 20 to 24, and men over 55. Put simply, the unemployment rate went down not because individuals secured jobs, but because they became discouraged and ceased their job search. 

The more comprehensive U-6 unemployment metric— which includes those discouraged workers plus people stuck in part-time roles when they want full-time work— actually rose slightly to 8%, even as the headline rate improved. Swonk noted that government employees forced to take part-time jobs during last month’s shutdown likely contributed to this uptick.

This increase aligns with the latest JOLTS report from earlier this week, which revealed hiring has fallen to its lowest rate since April 2020— a level previously seen only during the Great Recession.

The report represents a sharp rebound from February, when revised figures showed a loss of 133,000 jobs— a number that stunned economists for how far it missed expectations. But as the saying goes: one data report is a signal; two form a pattern; three months truly reveal the trend. The three-month moving average, Swonk said, stands at just 68,000 jobs, and over the past year the economy has added only 156,000 positions total— the weakest stretch since the pandemic.

“We entered this year with a tailwind,” Swonk said. “And now that’s being wiped out by the headwinds.”

These headwinds are arriving fast. The March survey was conducted before the energy shock from the U.S.-Iran war began rippling through the economy. Oil prices have spiked, shipping costs have surged, and several Asian countries that absorbed manufacturing from China—Vietnam, Cambodia, the Philippines—are already rationing fuel, Swonk said.

This isn’t the type of oil shock economists typically dismiss. Traditional shocks hit both sides of the equation at once, slowing growth while raising prices, and eventually fade away. This one “is more COVID-esque,” Swonk said, pointing to supply-chain disruptions extending far beyond crude—from diesel and jet fuel to helium, a key input in semiconductor production. Swonk added that CFOs she’s spoken with are watching shipping costs spike after the transportation sector just began recovering from a recession. 

“They’re just seeing things spike,” she said.

The healthcare sector continues to hum along 

To be sure, March showed the broad-based growth economists had been waiting for. For the past year, healthcare has been essentially the only industry consistently adding jobs. But this report showed gains in leisure and hospitality (44,000 jobs), residential construction, and manufacturing (15,000). Still, healthcare remained the dominant engine, contributing nearly 90,000 jobs—roughly half the total—with about 27,000 coming from striking nurses in California and Hawaii returning to work after negotiating a new contract to ensure safe staffing and protect against layoffs. 

Meanwhile, the frozen hiring market appears to be dragging on wages. Average hourly earnings rose just 0.2% month over month and 3.5% year over year— the slowest annual pace since 2021. Swonk expects inflation to cross 4% this summer and potentially approach 5%, meaning workers could soon lose ground in real terms even while holding onto their jobs.

And the pain is falling hardest on the youngest workers. The unemployment rate for new college graduates is running near 5.6%, almost double its 2019 level. Jeffrey Roach, chief economist at LPL Financial, noted employment among 20-to-24-year-olds is declining even as older workers gain ground—a shift he attributed in part to artificial intelligence reshaping entry-level roles. 

“This year will most likely be a year of shifting labor dynamics as artificial intelligence upends the job market, especially for low-skilled roles,” Roach wrote in a note.

The report eases one of the Fed’s trickiest dilemmas from the past year: weak job growth put pressure on officials to cut rates even as inflation refused to come down. A stronger labor market takes that tension off the table. 

“It means the Fed could focus on inflation,” Swonk said. “And inflation is a problem.”