March's Job Report: The Three Numbers That Should Matter The Most For The Fed And Wall Street
The Federal Reserve and Wall Street should look below the headline March jobs report released Friday to three numbers that matter the most for inflation and interest rates -- labor force participation, unemployment rate, and hourly earnings. These numbers suggest that the economy continues to create more jobs without fueling inflationary pressures.
The U.S labor market remained warm but not hot in March. According to the Bureau of Labor Statistics (BLS), the nation's businesses and government added 303,000 jobs in March, up from 270,000 in February and well above market forecasts of 200,000. Job gains were led by the healthcare, government, and construction sectors, suggesting that the U.S economy remains strong despite the high interest rates.
"Friday's stronger-than-expected jobs report indicates that the economy remains resilient in 2024 even in the face of rising interest rates and a fading expectation of Federal Reserve rate cuts this year," Glen Smith, chief investment officer of GDS Wealth Management, told International Business Times. "The fact that the labor market is such strong shows that companies and the economy are adapting to high-interest rates."
"Throughout 2024, the labor market has been resilient, and today's jobs report keeps that trend going," added Joe Gaffoglio, President of Mutual of America Capital Management. " Even after the downward revisions to recent reports, this report underscores the strength of the job market within the broader context of a U.S. economy that has continued to be mainly resistant to the effects of higher rates."
Julia Pollak, ZipRecruiter's Chief Economist, agrees, providing further insight into the connection between the March job report and the other economic data released in recent weeks, like online job postings have now risen for two straight months following a 20-month slide.
Jobless claims have been low and stable, showing no deterioration in the labor market; Leading indicators for the economy have recently turned positive for the first time in two years; The U.S. manufacturing PMI was strong in February and March after 17 months of weakness, with new orders and inventories rising. Employment typically follows.
Still, rising employment may not translate into higher inflation and interest rates, as the Fed and Wall Street usually expect. There are three other things to consider -- the unemployment rate, labor force participation, and wages.
Higher employment results in higher inflation only if there is declining labor force participation, sharply lower unemployment, and higher wages. But that isn't the case this time around. The unemployment rate came in at 3.8%, slightly below February but above January, meaning the labor market isn't getting that much tighter, easing wage and inflationary pressures.
Labor force participation, the percentage of the economically active population available for work — a proxy for the labor supply— came in at 62.7%, up from 62.5% in February. This number means that the labor supply increased as the economy created more jobs, easing wage pressures in the future.
Average hourly earnings in the private sector rose 4.1% in March, less than the 4.3% in February and in line with market expectations. This means wage growth is tapering off.
"It's hard to find anything wrong with the March Jobs report. Headline unemployment down, work week higher, average hourly earnings in line with estimates, labor force participation higher, and prior month's revisions were immaterial," Steve Wyett, Chief Investment Strategist at BOK Financial, told IBT. It is clear the combination of 'big fiscal' and the appearance of 'big immigration' is creating a powerful force for growth. The result is an economy that continues to grow above the trend even as the Fed remains restrictive in monetary policy."
Michelle Cluver, Head of ETF Model Portfolios at Global X, agrees. "Although the hotter-than-expected print raises questions about the timing for the Fed's first interest rate cut, continued labor market strength remains encouraging for the economy, "she told IBT. "Additionally, wage pressure came in line with expectations, proving some comfort in a hot report."
Wyett thinks the strong labor market should continue supporting the U.S. consumer and keep the Fed on hold for now. "We still expect the Fed to lower rates next, but there is little sense of urgency at the moment," he added.
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