CIO Notebook: March Jobs Zoom as Fed Decision Looms

April 05, 2024

In the short term, today’s release does little to increase the odds of a rate cut in June.

March’s nonfarm payrolls print delivered further evidence that the U.S. economy remains on solid ground. Released this morning, the report showed that the U.S. economy added 303,000 jobs versus consensus for a 214,000 gain. These monthly increases were driven by health care, government employment, leisure and hospitality, and construction, which accounted for gains of 72,000, 71,000, 49,000 and 39,000, respectively. Most industries exhibited positive or flat readings for the month; there were small declines in certain retail categories but not enough to create any meaningful concern around a pronounced slowdown in that industry. Notably, while global manufacturing activity is ticking up, according to PMI surveys, there was little evidence, in our view, of that translating into hiring within manufacturing or adjacent industries in this month’s data.

Outside of the acceleration in payrolls evidenced by the establishment survey, other aspects of the report were encouraging. The unemployment rate ticked slightly lower to 3.8% from 3.9%, and has remained in a range of 3.7% to 3.9% over the last several months—still below the Federal Reserve’s (Fed) expectation of 4.0% by the end of 2024. In addition, the labor participation rate rose to 62.7% from 62.5% after being anchored at the lower figure for the last three months. The average workweek increased modestly to 34.4 from 34.3 hours, with wages growing by 0.3% month-over-month and 4.1% year-over-year, in line with expectations. This was particularly positive, given that inflation readings over the last two months have come in hotter than expected and that a renewed move higher in wages would likely be difficult for the Fed to ignore.

Reading a bit further into the data, there was a positive revision to January’s print, increasing that reading by 27,000 to 256,000 and a slight (5,000) downward revision that reduced February’s reading to 270,000. This brings the average for nonfarm payroll additions in the first quarter to 276,000—well above the trailing 12-month average of 231,000. In addition, the household survey, which has been painting a less optimistic picture over the last several months, showed a 498,000 increase in employment for March. Finally, it’s worth noting that while there was an uptick in part-time employment, job seekers indicated that they were choosing part-time work for non-economic reasons.

Overall, this month’s report indicates that there are more job seekers, and that those job seekers are finding jobs across a broad range of industries. While one could point to greater economic pressure from high prices and depleted savings as a rationale for the uptick in participation, the implications of that conclusion are not entirely negative, in our view. The sharp increase in wages over the last several years was driven by a supply-demand mismatch in the labor market, and a reentry of previously sidelined workers into the labor market could help to keep a lid on wages even if economic growth remains above-trend.

In the short term, however, today’s release does little to increase the odds of a rate cut in June; that probability, according to the CME FedWatch tool, now sits at less than 60%. For the Fed, it provides comfort that they can continue to focus attention on the price stability side of their dual mandate, as the labor market continues to provide opportunities to those who seek them. As of this morning’s market open, U.S. equities were slightly higher, as were yields; both stocks and bonds are on track to close lower for the week as higher yields weigh on investor sentiment.


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