(Reuters) - Hiring plans among U.S. small businesses in March were the weakest since May 2020 when pandemic shutdowns threw the economy into recession, dropping below a key threshold some economists see as a bellwether for the wider job market, a survey out on Thursday showed.

A net 11% of firms surveyed by the National Federation of Independent Business last month said they plan to create new jobs, down from 12% in February. With the decline, the index is now below its historic average of 11.8%.

"Job creation plans are now below what would be typical in a strong growth economy," NFIB said in its report.

The NFIB report comes a day before the monthly payrolls report from the Bureau of Labor Statistics, which is expected to show 200,000 new jobs were created in March, down from the 275,000 initially reported for February and the lowest total since November.

Job growth has slowed over the last two years, averaging nearly 230,000 a month over the 12 months through February, which is down from about 350,000 a month in the year through February 2023.

The slowdown comes in the face of stiff interest rate hikes by the U.S. Federal Reserve aimed at containing inflation, but job growth nonetheless has defied expectations for it to weaken much more than it has. The monthly growth rate is still well above the 190,000 a month average over the five years prior to the pandemic.

Still, with the Fed so far reluctant to begin reversing course and start lowering interest rates, economists are on heightened watch for any indication of developing weakness in hiring, and the NFIB report is one that bears watching, they say, as it shows a reliable correlation with the BLS data with a lag of several months.

The NFIB report, like a separate report from payrolls processor ADP published on Wednesday, showed firms facing greater wage pressures last month. A net 38% in last month's NFIB survey reported raising compensation, up 3 points from February, which had been the lowest reading since May 2021. A net 21% plan to raise compensation in the next three months, up 2 points from February.