303K New Jobs Blow Through Expectations
This seems like more data that will give the Fed to put off rate cuts even longer.
The March jobs report was another blowout one. There were 303,000 new jobs, versus the median expected forecast of 200,000 (Dow Jones) to 214,000 (Bloomberg), with unemployment at 3.8%. The increase is far higher than the average monthly gain of 231,000 over the last 12 months. And average hourly wages over the last 12 months are at a 4.1% gain, much higher than actual inflation let alone target.
The details are important, but so is the hazier picture of what this might mean for interest rates this year.
The big jobs gains were in healthcare (72,000 versus prior 12-month average of 60,000); government (71,000 versus prior average of 54,000); construction (39,000 versus 19,000); and leisure and hospitality (49,000 versus 37,000 and it’s finally hit the February 2020 pre-pandemic level). That’s 231,000 total, or 76.2% of all additions.
Revisions in January and February numbers increased jobs in the two months by 22,000 more.
As for wages, the 4.1% 12-month increase, or 0.3% month-over-month, was for all private nonfarm payroll employees. But production and non-supervisory employees saw only 0.2%.
Markets have begun to wonder whether there would be only two rate cuts this year. Today’s jobs report doesn’t make the outlook much clearer.
“This month’s strong job growth is a sign that the economy is maintaining strength, and we expect the Fed to react accordingly by continuing to pause until the second half of 2024,” wrote Steve Rick, chief economist at TruStage (Formerly CUNA Mutual Group) in an emailed note. “This month’s strong job growth is a sign that the economy is maintaining strength, and we expect the Fed to react accordingly by continuing to pause until the second half of 2024.” But that is largely because they expect unemployment to rise later this year, triggering the Fed to start rate cuts.
“With the unemployment rate edging lower to 3.8% the fact that hourly wages inched lower — key for extrapolating the inflationary impact – equity futures remain positive , however the policy sensitive 2-year Treasury and market sensitive 10-year Treasury climbed higher on the print,” wrote Quincy Krosby, chief global strategist for LPL Financial, in an emailed note. “This report helps underscore the Fed’s narrative that they need a series of inflation-related data reflecting the downward trajectory of inflation gaining momentum.”