Key takeaways:

  • The latest nonfarm payrolls report continued to show strong hiring for the month of March, but over the longer-term hiring appears to be cooling in an orderly fashion.
  • Payrolls increased by 236,000 in March, slightly above the expected number of 230,000. The unemployment rate decreased to 3.5% for the month, with monthly wage growth moving 0.3% higher.
  • Equity markets were closed given the Good Friday holiday, with little reaction seen in the Treasury market, which was open for morning trading. Overall, today’s print changes little in the eyes of the FOMC for their rate hiking path.

 

1. What happened?

 

Today, the latest U.S. jobs report for March showed a continued strengthening of the jobs market with another increase beating expectations. Nonfarm payrolls increased last month by 236,000 versus an expected increase of 230,000 with the unemployment rate decreasing slightly from 3.6% to 3.5%. Following today’s release, it has been a full year since a Nonfarm payroll report came in below expectations.

 

Elsewhere in the report, the average hourly earnings continued to grow by +0.3% MoM, in line with expectations. Annual wage growth also came in softer than estimates suggested, reaching +4.2% vs. +4.3%. The latest annual figure is the lowest in almost two years, moving closer to the desired 3% pace consistent with the Federal Reserve’s 2% inflation target.

 

From a sector perspective, leisure and hospitality yet again saw gains (+72,000) alongside healthcare which has recently struggled with job shortages (+50,800). Falls in hiring within both construction and manufacturing (-10,000), retail (-14,600) and temporary help (-11,000) show evidence of a labor slowdown within the more cyclical elements of the economy.

     

The overall participation rate, showing the percentage of the population that is working or looking for work, moved up again from the previous month to 62.6%, its highest level since March 2020. The slight increase appearing to explain the move lower in the overall unemployment rate this month with a strong gain seen in the household survey data, which is a sample of employment for households including agricultural workers and the self-employed, by +577.000 as well as a further increase in the labor force by +480,000.

 

Included within March’s jobs report, there were slight revisions to the previous month's figures as additional employment survey data comes in for the period in question. January’s surprisingly strong payrolls total was revised down to +472,000 from +504,000. Last month’s report for February was also revised up from +311,000 to +326,000. Overall employment across both months is -17,000 lower than previously reported.

 

2. How did markets react?

 

Given today’s market close due to the Good Friday holiday, there is no investor reaction to highlight within the equity space although futures markets moved higher for next weeks open. Fixed income markets were open for morning trading which saw yields move higher, especially at the short end of the yield curve. The more interest-rate sensitive 2 Year Treasury yield moved higher by 13 basis points to reach 3.96%.

 

Following today’s report, markets yet again readjusted their interest rate expectations by increasing the probability of a 25-basis point hike in May whilst also pushing the start of expected rate cuts further out from July to September. 

 

3. What does it mean for investors?

 

On the surface, today’s Nonfarm Payrolls report continues to show a strong labor market with yet another expectation beating payrolls number. Combined with record low unemployment, such headline data will do little to change the Federal Reserve’s mind.

 

Under the surface, there appears to be some movement in the right direction in order to convince the FOMC that their aggressive rate hiking cycle could be nearing its conclusion. Momentum appears to be fading since the start of the year with a steady decline in hiring. Today’s report was indeed the smallest monthly gain since December 2020. Wage growth also appears to be moving lower with the seasonally adjusted figure over the last three months rising by +3.2%, a far more manageable growth rate for Chairman Powell and the FOMC.

 

Elsewhere, further evidence has started to point to the beginnings of a measured slowdown in the labor market. This week’s decline in the Job Openings and Turnover Survey (JOLTS) and pickup in Jobless Claims (228,000 vs. 200,000 exp.) may well be the start of a broader trend in the data. ADP private sector employment released this week also showed signs of coming off recent highs.

 

Overall, the latest data appears to confirm the more immediate action of a 25-basis point hike taken by the Federal Reserve next month, although we will certainly know more next week with March’s CPI release (April 12th). Taking a longer view, a steady decline in payrolls and wage growth as well as the continued drop in inflation levels will give the Fed confidence that their policy action is having the desired effect. However, tail risks around further banking stresses remain. 

 

The latest jobs report gives investors a mixed bag of data points to assess over the long weekend. For the Federal Reserve, the slowing momentum in payroll and wages could lead to a pause in their rate hikes following the May meeting. Maybe such a robust economy could reach a soft landing after all?

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  • Glossary

    The Fed funds rate is the interest rate at which depository institutions lend overnight to other depository institutions.

     

    The Federal Reserve (Fed) is the central bank of the United States. Its Federal Open Market Committee (FOMC) meets to determine interest rate policy.

     

    The Job Openings and Labor Turnover Survey (JOLTS) produces survey data on job openings, hires and separations over the previous month.

     

    The NASDAQ index is a market-capitalization weighted index of around 3,000 equities listed on the Nasdaq exchange.

     

    The Nonfarm payrolls is a monthly report that measures the change in people employed during the previous month, excluding the farming industry.

     

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