A robust job market may result in substantial increases for March's payroll and wage totals.

• The monthly report, to be released Friday morning, is expected to show that 490,000 jobs were added in March, which is lower than the 678,000 jobs added in February.
• According to Dow Jones, the unemployment rate is predicted to decline to 3.7% and the average hourly wages are anticipated to increase by 0.4%.
• One economist stated that the job market functions like a machine, with approximately 500,000 jobs being added or subtracted each year. However, maintaining this rate for an extended period will lead to an economic overheat.

Nearly a half-million jobs are predicted to have been added to the economy in March, along with a probable increase in wage gains at a faster pace.

The employment report, released at 8:30 a.m. ET Friday, is expected to show that 490,000 payrolls were added, down from 678,000 in February, and the unemployment rate dipped to 3.7%, from 3.8%.

According to Dow Jones, the pace of wage gains is predicted to increase to 0.4% in February or 5.5% year-over-year, despite wages being flat on a monthly basis in February but rising 5.3% year over year.

"Mark Zandi, Moody's Analytics' chief economist, stated that the job market is booming, with over 500,000 jobs being added each year for the past year. However, he warned that this pace cannot be sustained indefinitely, as it could lead to an economic overheat."

According to Zandi, job growth is predicted in sectors heavily impacted by the pandemic, including leisure and hospitality as well as professional services.

"Marvin Loh, State Street senior global macro strategist, stated that transportation and hospitality sectors are still experiencing high demand, with job gains across most industries. He advised looking at the retail sector, as higher gas prices can negatively impact consumption categories first."

Hiring for a hybrid structure

LaSalle Network CEO Tom Gimbel stated that he has not observed any indication from CEOs that the Ukraine conflict is altering their plans, and they are more concerned about inflation and the labor shortage. However, he mentioned that the firm's cybersecurity practice has experienced a 50% increase in demand from a year ago. The areas of sales and marketing are currently experiencing the highest demand for hiring.

"According to Gimbel, the large excess in applications for openings indicates that individuals desire employment, signaling a shift in priorities. Previously, individuals sought higher salaries and remote work options."

Gimbel stated that companies are now adopting a hybrid work structure, with employees spending more time in the office but still working from home part-time. He explained that companies are willing to pay for experienced talent, and wages are continuing to rise. As a result, individuals with two years of experience are now receiving what they would have earned with five years of experience. Gimbel also mentioned that out-of-college salaries are starting to increase significantly.

According to Gimbel, a young professional in consulting may have initially earned $55,000 to $60,000 several years ago, and now could see a salary offer of $75,000 to $90,000. "It's just that companies are in such short supply of people to do the work," he said.

Room for growth

Despite a slight decline in the participation rate, total nonfarm employment in February 2021 was still 2.1 million, or 1.4%, lower than its prepandemic level in February 2020.

The Federal Reserve has shifted its focus from job creation to fighting inflation, as Zandi believes the economy still has room to generate more jobs before reaching full employment.

The Fed raised interest rates by a quarter-point this month, its first hike since 2018, and economists predict it could increase the pace even more to a 50 basis point hike in May. The Fed forecasts seven quarter-point rate hikes for this year.

The wage component of the employment report is crucial for markets that have been preoccupied with inflation.

"Diane Swonk, chief economist at Grant Thornton, stated that she anticipates a 0.4% increase in average hourly wages. This will result in a 5.5% annual growth rate, bringing wages back to their January levels. Although wages slowed down slightly in February, Swonk expects a reacceleration in wage growth."

Inflation is expected to rise again in March as wages continue to increase.

"Although wages are not increasing at the same rate as inflation, they are still contributing to the rise in both goods and services inflation, according to Swonk. This is evident in the service sector."

Despite the contents of the employment report, it is predicted that the Fed will increase interest rates in May.

"Swonk stated that the Fed has already decided that we are overheating, as the gain in jobs is remarkably fast but faster than the economy can accommodate. If everyone rushes out at the same time, people will be crushed."

The March jobs report is unlikely to significantly affect the market, according to State Street's Loh.

"From a market perspective, unless it's a massive surprise to the downside, it's not going to have a big effect. From a monetary perspective, the Fed has already signaled that we're at full employment."

If the participation rate doesn't improve, the jobs market could overheat, meaning the number of people actually working in the economy won't expand.

If we print these numbers without people returning to work, we could rapidly decrease the unemployment rate, indicating an overheating economy.