Is there anything that can impede the progress of the U.S. labor market?
In March, employers defied high interest rates, stubborn inflation, and growing household financial stress by adding a staggering 303,000 jobs, leading to a significant acceleration in hiring.
According to the latest report from the Labor Department, the unemployment rate experienced a decline from 3.9% to 3.8%.
According to a survey conducted by Bloomberg, economists had anticipated the addition of around 213,000 jobs last month.
Payroll gains for January and February have been revised, showing an even stronger indication of job growth in the early months of this year. January’s gains have been adjusted from 229,000 to 256,000, while February’s gains have been slightly downgraded from 275,000 to 270,000. This revision adds a total of 22,000 additional jobs to the previously reported numbers.
The latest report strengthens the belief that the economy is headed for a “soft landing,” wherein the Federal Reserve successfully curbs inflation without causing a recession. However, economists suggest that the robust job market may lead the Fed to delay interest rate cuts until later in the year in order to ensure inflation remains under control before taking action.
Are wages going up faster than inflation?
Hourly wages climbed by 12 cents to reach $34.69, resulting in a slight dip in the annual growth rate from 4.3% to 4.1%.
Average wage growth has decelerated since reaching a peak of 5.9% in March 2022, as labor shortages have improved. However, it remains higher than the 3.5% rate that Federal Reserve officials believe would be in line with their 2% inflation target.
In the past year, many Americans have been benefiting from pay increases that have surpassed inflation. This has resulted in them having more purchasing power.
What will interest rates do in 2024?
According to Jerome Powell, the Chair of the Federal Reserve, there is no longer concern that the robust job growth in the economy will lead to overheating and a sudden surge in prices. What is more noteworthy is the fact that wage increases, which have the potential to drive inflation, remained subdued in the past month.
However, the scorching report may provide assurance to Fed officials that there is little risk of a significant weakening in the economy or a recession. This could potentially delay the anticipated first rate cut, which markets are expecting to happen in June.
Economist Paul Ashworth of Capital Economics noted that the strong nonfarm payrolls of 303,000 in March validate the Federal Reserve’s stance on delaying rate cuts. This suggests that rate cuts may not occur until the latter half of the year, as the economy demonstrates its resilience.
The Federal Reserve has increased its key short-term interest rate from near zero to a 23-year high of 5.25% to 5.5% since March 2022. However, they have maintained this rate since last July due to a decline in inflation. The officials have projected three rate cuts for this year, which has boosted the stock market. However, if inflation continues to ease or if the economy and job market remain strong, the timeline for these rate cuts could change.
In February, the Fed’s preferred inflation measure increased to 2.5%, surpassing its 2% target but still significantly lower than the 7% peak it reached in mid-2022.
What is the stock market doing today?
Investors seemed to find comfort in the blend of significant job gains and a slowdown in wage growth, which could potentially support the Federal Reserve’s projection of three interest rate cuts in the current year. At the start of trading, the Dow Jones industrial average increased by 82 points to reach 38,679, while the S&P 500 index experienced a 0.54% climb, reaching 5,174.
Which sectors added the most jobs?
In the past month, the health care and social assistance sector saw a notable increase in job gains, with 81,000 new positions. Additionally, the public sector, primarily local governments, contributed to the growth by adding 71,000 jobs. The construction industry also experienced positive growth, with an increase of 39,000 jobs. Furthermore, the leisure and hospitality industry, encompassing restaurants and bars, saw a surge of 49,000 new positions.
According to Ashworth, the increase in payroll is still somewhat imbalanced, with the government, health care, and leisure and hospitality sectors leading the way. It is worth noting that these sectors were also responsible for driving job growth in the latter part of last year, leading to predictions of a significant slowdown in the labor market in the near future.
In March, the mild weather might have contributed to an increase in job creation in the leisure and hospitality as well as the construction sectors. However, this could potentially result in reduced hiring in these industries in the upcoming months. It is worth noting that the professional and business services sector only added 7,000 jobs last month, while manufacturing payrolls remained unchanged.
What is the labor force participation rate?
In March, there was a significant increase in the labor force, with 469,000 people joining the workforce in search of employment opportunities. As a result, the percentage of adults in the labor force rose from 62.5% to 62.7%. Although this is slightly below the pre-pandemic level of 63.3%, it is still a positive sign of recovery from the impact of COVID-19.
A larger workforce helps to control the increase in wages, giving the Federal Reserve confidence that employment can continue to grow without causing inflation.
Is the job market still strong?
The pace of job growth has been gradually slowing down following a surge in hiring during the post-pandemic period of 2021 and 2022. However, the slowdown has not been as significant as initially predicted. During the winter months, employers continued to add over 200,000 positions each month. This unexpected resilience in job creation can be attributed to factors such as unseasonably warm weather in December and lower layoff numbers in January, as fewer holiday workers were hired in the previous months.
Net job gains have been strengthened by employers’ hesitancy to lay off workers after experiencing labor shortages due to the COVID-19 pandemic. However, the number of hires has declined below pre-pandemic levels due to high borrowing costs and economic uncertainty during a presidential election year.
Forecasts suggest that the factors that have supported the increase in employment may diminish, leading to a decrease in job gains to less than 100,000 per month by the middle of the year.
The Federal Reserve’s aggressive interest rate hikes to combat inflation are expected to have a lasting impact on business spending and hiring. Many Americans have already depleted their savings due to the ongoing effects of the COVID-19 pandemic. Additionally, low- and middle-income households are facing significant financial strain due to record levels of credit card debt.
Goldman Sachs predicts that the labor supply will continue to be bolstered by a significant influx of immigrants, leading to increased hiring in the coming year. They highlight that the number of job openings remains significantly higher than before the crisis. According to Goldman Sachs, last month alone, immigration may have contributed to job growth by as much as 50,000 to 290,000.
