The U.S. economy added a booming 303,000 jobs in March, a recent report shows, filling out the portrait of a stunningly resilient labor market that keeps shrugging off high interest rates and inflation.
Yet the job market may not be as hot as it looks.
Professional and business services – a sprawling sector that includes most white-collar fields – added a meager 7,000 jobs last month and has created just 71,000 positions since June of last year. The tally was pumped up by January’s 48,000 white-collar payroll gains.
Economists have questioned the employment totals in that month because of challenges the Labor Department faces early in the year as it seasonally adjusts the raw figures from its monthly survey.
During the same eight-month period in 2022 and 2023, professional and business services added 275,000 jobs.
A downshift could be a troubling sign for the economy and labor market because professionals earn among the highest salaries and provide a big boost to consumer spending, says economist Agron Nicaj of MUFG Bank.
A professional worker in an office meeting
What industries experienced job gains?
U.S. job growth, in fact, mostly has been driven by just four large sectors since fall – government; health care; leisure and hospitality; and construction. Local governments and leisure and hospitality – which includes restaurants and bars – have been catching up to their pre-pandemic employment levels. Health care has been buoyed by aging baby boomers. And construction hiring has been propped up by a dire housing shortage and recently easing mortgage rates.
Analysts say that’s not enough to juice hiring in the months ahead.
“How long can two to four industries sustain economic activity in the United States?” Nicaj asks.
How does the jobs report affect interest rates?
There may be a silver lining to a softening job market. Reports in the past week revealing robust job growth and higher-than-anticipated inflation have led the futures market to push back forecasts for the Federal Reserve’s first interest rate cut from June to September. And its estimate of three rate cuts this year has been trimmed to two. If job growth lags, it could help convince the Fed to reduce rates sooner, assuming inflation continues to ease.
What job fields are declining?
Other large sectors also have turned in weak employment growth since mid-2023, or even longer in some cases, but they’ve been constrained by industry-specific factors. Financial activities have been hindered by high interest rates; the information industry, by massive tech layoffs after excessive hiring during the pandemic; and manufacturing, by a shift in consumer purchases from goods to services since the health crisis has faded and by high rates that discourage business investment.
Professional and business services, however, include 23 million workers in a wide variety of fields, including law, accounting, architectural and marketing firms; HR consulting companies; temporary staffing firms; travel agencies; and office administration services.
In other words, it pretty much reflects the U.S. economy. If the economy is chugging along nicely, so should professional services.
Why is it so hard to get a white-collar job right now?
Much of the shortfall in white-collar hiring can be traced to employment by temporary help services, which has fallen by 181,000 over the past year. Traditionally, companies cut temporary workers before laying off their own permanent staffers, so the sharp drop-off augurs poorly for future job growth, Nicaj says.
But economist Dante DeAntonio of Moody’s Analytics points out that payrolls of temporary staffing firms have been declining for two years. He says companies relied heavily on temp agencies when they couldn’t find permanent workers during the pandemic and so their payrolls have been returning to normal as labor shortages have eased.
Noting that payrolls at temporary staffing agencies have slid below pre-pandemic levels, he also suggests that worker shortages may have given temp workers the leverage to ask their companies to convert them to permanent staffers.
But, he adds, “It’s not clear whether this is enough to explain the trend.” It’s possible, he says, that the pullback in temp worker employment also signals wider layoffs ahead.
What white-collar jobs are at risk?
Temporary help isn’t the only industry within professional services that’s shedding or flatlining jobs, Nicaj notes. Over the past year, employment has been unchanged at marketing and HR consulting firms and down at business support services, such as call centers. Since July, payrolls have held steady at management consulting services.
With the course of the economy uncertain, many companies may be scaling back their outsourcing of services like HR and marketing and shifting those duties to in-house employees to save money, Nicaj says.
In the summer and early fall, professional and business services shed jobs for four straight months, a streak that normally indicates an ongoing recession, Nicaj says. That’s not currently the case, he says, because at least some of the weak hiring can be traced to labor shortages rather than feeble demand by employers. In February, the gap between job openings and hires was wider for professional services than for U.S. industries overall, he says.
Still, he says, employer demand for office workers is softening as well.
'I'm going to be very cautious'
Adam Morris, CEO of SalesFirst Recruiting, says orders for sales reps, account managers and marketing professionals have been falling and the Portland, Oregon-based company saw sales decline last year. He attributes the drop-off to a correction after a burst of post-pandemic activity and hiring in 2021 and 2022.
Morris says that applies to his own recruiting firm as well. He has 13 employees, down from 20 or so in 2022 because he decided not to replace those who left last year. So far this year, business has picked up a bit and he plans to expand his staff but warily.
Saying he doesn’t think it’s ethical to hire workers only to let them go, Morris says, “I’m definitely going to hire one to two people. I’m going to be very cautious after that.”
