Policies Driving Labor Market

Originally published on Substack. 

Today’s U.S. jobs report was better than expected, and that is welcome news. The economy added 178,000 jobs in March, the unemployment rate edged down to 4.3%, and average hourly earnings rose 3.5% over the past year, according to the latest BLS employment report. After the weakness earlier this year, that is a solid bounce.

But let’s not kid ourselves. One better month does not mean the labor market is healthy. It means March was better than February. That is not the same thing.

The Headline Was Better
​
A gain of 178,000 jobs is real progress, well above what some expected. February payrolls had dropped by 133,000, so March was clearly an improvement. Americans keep working, businesses keep hiring when they can, and that resilience should be acknowledged.

But the same BLS report also says payroll employment has “changed little on net over the prior 12 months.” That is the line that matters most. This was a good month inside a labor market that has been sluggish for more than a year, with declines in six of the last fourteen months.

Private Hiring Still Looks Weak

The private sector added 186,000 jobs in March. That is better than a decline, but it is still not broad-based strength. The problem is not the size of the gain. It is how concentrated is that gain.
​
According to the BLS data, health care added 76,000 jobs, construction added 26,000, transportation and warehousing added 21,000, and social assistance added 14,000. Those sectors did most of the work.

Meanwhile, financial activities lost 15,000 jobs, and BLS said manufacturing, wholesale trade, retail trade, information, professional and business services, leisure and hospitality, and other services showed little change.

That is not a broad private-sector expansion. That is a narrow labor market being carried by a few sectors.

Government Jobs Declined Again
​
Government employment fell by 8,000 in March, including an 18,000 drop in federal government jobs, according to the BLS report. That federal decline is good news on its own, as it is the fewest federal employees in 60 years and the lowest share of total employment since at least 1939.

But the broader lesson is more important. If federal payrolls (good) are shrinking while only a small private sectors addition (not good), that means the labor market is still too weak underneath the surface. A truly healthy economy would show broad hiring across many private industries, not just a few pockets doing the heavy lifting, which are dominated by government.

The 12-Month Trend Is Still Soft

The annual trend looks worse than the headline.
​
BLS says construction had shown little net change over the prior 12 months. Transportation and warehousing is down 139,000 jobs since its February 2025 peak. Financial activities is down 77,000 since its May 2025 peak. And federal government employment is down 355,000, or 11.8%, since its October 2024 peak, per the same report.

Health care remains the standout, adding an average of 29,000 jobs per month over the prior year. That is good. But it also proves the larger point: too much of the labor market’s strength is concentrated in too few places that are dominated by government.

The Labor Force Drop Matters

The unemployment rate dipped to 4.3%, but not for the best reason.

The BLS report shows the civilian labor force fell by 396,000 in March. The number of people not in the labor force rose by 488,000. The labor force participation rate slipped to 61.9%, and the employment-population ratio fell to 59.2%.

That means part of the lower unemployment rate came from fewer people being counted in the labor market, not from a broad surge in employment opportunities. That is why this report is better described as encouraging than reassuring.

Wages Help, but Families Are Still Squeezed

Wage growth at 3.5% over the year is better than falling behind inflation, at least for the moment. But it is hardly a huge cushion when families are still dealing with elevated prices for food, housing, insurance, and energy.

And this is where bad policy keeps making things worse.

Tariffs are taxes. They raise costs for businesses and consumers. Energy shocks tied to the war in Iran threaten to push gas prices and broader inflation higher. Years of overspending and monetary excess already strained affordability.

Families do not experience the economy through one payroll headline. They experience it through their budget, and their budget is still under pressure.

Bad Policy Still Drives the Weakness

The jobs report does not assign causes. That is not its job. But the policy backdrop matters.

A labor market with weak breadth and falling participation is more vulnerable to policy mistakes. Tariffs discourage trade and investment. Regulatory burdens raise costs and reduce flexibility. Overspending fuels inflation and weakens real purchasing power. Energy instability pushes input costs higher across the economy. Policy uncertainty makes businesses more cautious about hiring and expanding.

So, yes, March was better. But the economy is still carrying the weight of too many bad policy choices. That is why this report is not a vindication of the current policy path. If anything, it is a reminder of how resilient Americans are despite Washington’s mistakes.

Three Takeaways for Policymakers

1. Don’t oversell one month.

March’s 178,000 job gain was a welcome bounce, but BLS says payrolls have changed little on net over the prior 12 months.

2. Private-sector strength is still too narrow.

Most of the March gains came from health care, construction, transportation and warehousing, and social assistance, while many other industries were flat or down, according to BLS.

3. A lower unemployment rate means less if the labor force is shrinking.

The BLS report shows the labor force fell by 396,000 in March and participation slipped to 61.9%.

The Bottom Line

March was a bounce. Good.

But the private sector still looks too weak, too narrow, and too vulnerable to bad policy. Federal jobs fell, which is fine. The bigger issue is that broad private-sector hiring still is not there. And when the labor force is shrinking, a lower unemployment rate is not nearly as comforting as it looks.

Policymakers should stop making affordability worse through tariffs, overspending, and more distortion.