The US economy added more jobs than expected in March, while the unemployment rate rose slightly. EY chief economist Gregory Daco sits down with Julie Hyman and Madison Mills to share his instant reaction to the jobs report.
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Joining us now to break down the jobs report is Greg Dako, EY Chief Economist. So Greg, you've had a few minutes to look through the report, just give us first of all your sort of um top line observations.
I think this is reassuring. Uh it's reassuring in the sense that uh as we've been highlighting, we still have fairly robust fundamentals uh on the eve of what may be a significant economic slowdown resulting from the tariffs. Um this is the important part to remember. The economy going into 2025 had solid fundamentals. There were signs of a slowdown and these are still underneath the surface present, but we're not seeing any type of retrenchment before the implementation of these tariffs and before the massive surge in policy uncertainty, which is feeding through to market volatility.
So is this the last good jobs report?
It may be. Uh if we think back at the the timeline of uh what has been happening to the US economy, we had uh earlier in February and then in March the implementation of 20% tariffs on China that is gradually leading to increased price pressures um and will feed into higher inflation and in turn demand destruction, unfortunately. And then we also have an environment in which we've started to see more and more cuts at the federal government level. Now, we did not see much of these cuts in this payroll report. The federal employment numbers were down very slightly, nothing alarming on that front, but we did hear earlier this week about job cuts at the federal level uh from a different report that showed a significant rise in layoffs at the federal level that led to the second highest number of total layoffs since the COVID pandemic. So we are in this environment where there's a lot of uncertainty as to the direction of travel of the economy, but I think one thing is sure, we're on this deceleration path that's led by lower income growth, which will feed into consumers being more judicious with their outlays. And if you layer on top of that, additional tariffs, ongoing policy uncertainty, and very importantly, financial market stress, that could lead to a catalyst for a stronger slowdown in the economy.
As I mentioned, the unemployment rate did tick up a tenth of a percent to 4.2%. And as we know, these are different surveys, right? Payrolls comes from companies saying, these are the people I hired, the unemployment rate comes from a household survey where you ask people if they're employed or not. Still, what where what do you think that tick up came from?
Well, I was looking at the details just to figure out where it was coming from because you can have a a rise in the unemployment rate for good reasons or for bad reasons. In this case, what was very interesting was that the participation rate rose a tick. Um so you have essentially more people coming into the labor force and the rise in the number of unemployed individuals was slight, but not that big. So what really happened was that you had more of a rise in the labor force participation rate and alongside with that, some people ended up being unemployed. Um but that's not necessarily that alarming. What would be more alarming is a surge in the number of unemployed or a massive downfall in the number of people employed that would lead to that upward pressure on the unemployment rate. We know, and this is very important, that supply side conditions are key and have been key in driving this disinflationary cycle and this resilience in the US economy. A participation rate that is falling is something to be concerned about. One that is rising is something that we should be very much positive of, especially in a context where immigration trends have been cooling.
