Evening Brief – 04.05.24
Blowout
U.S. nonfarm payrolls rose by 303,000 in March, the Bureau of Labor Statistics (BLS) reported on Friday, vastly exceeding market expectations for an increase of 200,000 and tied for the highest since January 2023. The unemployment rate decreased slightly to 3.8% from 3.9%, while the labor force participation rate increased to 62.7% from 62.5%.
Meanwhile, the average hourly earnings met expectations, increasing 0.3%, higher than the revised 0.2% from the previous month. The yearly increase in hourly wages was 4.1%, in line with expectations, which is slightly lower than the previous rate of 4.3%. This marks the lowest rate in nearly three years. The last time salaries increased by a similar amount was in the summer of 2021.
The change in total nonfarm payroll employment in January was revised up by 27,000 to 256,000, while the change in February was revised down by 5,000 to 270,000. With these revisions, employment in January and February was 22,000 higher than originally reported.
“The source of this strength is easy financial conditions. The stock market is up $10 trillion over the past five months, which is a significant wealth gain for household balance sheets,” said Torsten Slok, partner and chief economist at Apollo.
“Credit spreads are tighter for IG [investment grade], HY (high yield) and loans. Big rebound in IG issuance and HY issuance in January, February, and March. IPO activity is coming back, and M&A activity is coming back. These factors will all support consumer spending, capex spending, and hiring over the coming quarters… We are sticking to our view that the Fed will not cut interest rates this year,” he added.
Job gains were in health care (72K), namely ambulatory health care services (28K) and hospitals (27K); government (71K), namely local government (49K); and construction (39K).
Employment gains remain elevated by historical standards and continue to surpass the 70,000 to 100,000 needed monthly to keep up with the expanding working-age population.
What’s perhaps more significant is that after several months of reductions in the household survey the number of employed individuals has finally recovered, climbing by 498,000 to 161.466 million.
At first glance, the jobs report appears to argue against three interest rate cuts. Still, the average hourly earnings align with the forecasts, and according to Federal Reserve Chair Jay Powell’s prior statements, a robust job market should not be worrisome if inflation remains under control.
The next CPI report is critical to interest rate forecasts. But today’s jobs data should comfort markets that if the Fed does not lower rates in June, it will be because the economy is still strong, and earnings are expected to rise further.