What? The Wall Street area, from New Jersey in the west to Long Island in the east, was shaken Friday morning not by market turmoil but by the region’s largest earthquake in nearly 140 years.
As Monday’s solar eclipse approaches, many wonder if Biblical plagues like locusts and boils will follow. And conspiracy theorists were probably saying that Friday’s quake (magnitude 4.8, according to the U.S. Geological Survey) would have been much larger without the fudge factors applied by government statisticians.
The March jobs report, released hours earlier on Friday, could not make this claim. The data also showed a much higher-than-expected increase in payrolls, but there was no significant downward revision to the previous data, which was lower than last month’s report. In addition, the unemployment rate also decreased as more people entered the labor force and found jobs. There was a good reason for this.
In terms of numbers, nonfarm payrolls rose by 303,000 people last month, again about half of what economists expected, while the unemployment rate fell to 3.8% from 3.9% in February. The average hourly wage in March increased by 0.3%, and compared to the same month last year it increased by 4.1%. Meanwhile, his weekly working hours increased by 34.4 hours and his hour by 10 minutes.
Among the several notable highlights in the latest release, the sectors that performed well reflected the health of the economy, including government jobs up 71,000 in March and health care up 72,000. It is said that it was a sector that did not do so. However, despite rising interest rates, employment in the construction industry rose again by 39,000.
Another influence that has influenced labor market data is the strength of part-time employment compared to full-time employment. But there’s nothing wrong with that, if it’s for a good reason, said Michael Reed, an economist at RBC Capital Markets. The number of part-time workers who actually prefer such work outweighs the number of part-time workers who are forced into part-time work for financial reasons by a factor of five, he wrote in a client note.
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With more employers changing their work-from-home policies, it’s not surprising that some workers would prefer more flexible arrangements, he continued. There is also a clear upward trend in the number of workers over 55 choosing part-time rather than full-time work, he added.
Additionally, labor force participation among “prime-age” people (25 to 54) exceeded pre-pandemic levels, but this was not the case for older age groups. The biggest shortage is among workers over 65. Their lack of experience and skills is likely contributing to slower productivity growth in 2021 and beyond, said Thomas Simmons, an economist at Jefferies.
Overall, the March employment report confirmed the picture that the U.S. economy is growing at its potential. Real gross domestic product expanded at an annualized rate of 2.5% in the first quarter, according to the Atlanta Fed’s GDPNow tracker. Although the labor market is at full employment, inflation remains well above the Fed’s 2% target.
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Nevertheless, Fed Chair Jerome Powell appears intent on the central bank lowering its key federal funds policy rate, said Lara Reim, chief U.S. economist at FS Investments. But she added in the interview that the Fed could make a “surgical, pincer” rate cut rather than begin a round of easing measures.
Powell’s dovish tone contrasts with other central bank officials, particularly Minneapolis Fed President Neel Kashkari, who on Thursday suggested that interest rate cuts may not be necessary this year, causing market volatility. Although it contributed to the agitation, I discussed this idea a week ago.
The latest economic forecast summary from last month’s policy meeting assumes the median of three cuts of a quarter point each this year, from the current federal funds target range of 5.25% to 5.50%. . After Friday’s strong jobs report, futures markets are no longer expecting a first rate cut in June, but are now pricing in a total of three rate cuts by the end of the year, albeit just barely, according to the CME FedWatch site.
U.S. Treasury yields rose sharply this week as the Fed became less likely to cut interest rates in the near term and oil and gold prices rose. The benchmark 10-year Treasury note ended the week at 4.38%, the highest yield since late November and up more than 0.5 percentage point since early February. Stock prices followed
S&P500
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Despite a strong rebound on Friday, it fell 1%.
Perhaps even more important than the jobs report is the inflation report due out next week. The consumer price index for March will be announced on April 9th. Economists’ consensus forecast was for both the overall index and the “core” index, which excludes food and energy prices, to rise 0.3%, down from February’s 0.4% rise.
Economists at Nomura say gasoline prices likely pushed up the headline numbers, but used car prices are expected to fall significantly. And we estimate that so-called supercore measures (core services excluding rent) will probably rise 0.4% in March, slowing from an average of 0.7% over the past two months.
Even with the improvement, the Nomura team believes that inflation, as measured by the Fed’s preferred index of core consumer spending, will remain well above its 2% target and the latest SEP median of 2.6%. ing. If that means fewer rate cuts than expected, we need to watch out for further market turmoil.
Write destination Randall W. Forsyth, randall.forsyth@barrons.com
