The U.S. labor market extended a streak of strong hiring in March, recording another month of job growth even as decades-high inflation, supply chain imbalances and Russia’s war in Ukraine raised concerns over the economic outlook.
The Labor Department reported Friday that non-farm payrolls rose by 431,000 in March. Payroll gains were shy of the 490,000 jobs Bloomberg economists had forecast employers would add and below last month’s blowout tally of 678,000 but still marked an increase well above pre-pandemic trends.
“Don’t be fooled by today’s ‘consensus-like’ jobs data,” economists at Bank of America said in a Friday note titled “March Madness.” “The consensus was looking for a blowout report and that is what we got.”
Other figures in Friday’s release affirmed continued strength in the labor market recovery. The unemployment rate came in at 3.6% to just a tenth above its pre-pandemic low of 3.5%, even as the labor force participation rate ticked up slightly to 62.4%. While demand for labor continues to outpace the number of Americans re-entering the workforce, the economy has recovered more than 90% of the 22 million jobs lost at the start of the pandemic and continues to recuperate losses at a remarkable pace — an average gain of 600,000 over the past six months — as virus cases and COVID-19 restrictions abate.
Wages continue to climb well above pre-pandemic levels. On an annual basis, wages soared 5.6%, up from last month’s 5.1%. And over last month, average hourly earnings ticked up 0.1% after they stayed flat in February’s report. While higher pay appears good for workers, the reality is a bit more complicated, especially since the annual jump has failed to keep up with 40-year-high inflation of 7.9%. Moreover, soaring wages are expected to keep prices elevated, stoking worries, particularly at the Federal Reserve, that inflation could persist longer than expected if gone unchecked.
Fed interest-rate hike watch
The latest employment data gives the Fed “ammunition” for a more aggressive 0.50% interest rate increase next month and possibly again in June as it moves ahead on its monetary tightening campaign, according to LPL Financial.
“The March jobs numbers are strong enough to support a 50 basis point hike in May as the FOMC will front-load their tightening path,” LPL’s chief economist Jeffrey Roach said in a note, which also stated the “conundrum” for officials is getting wages up high enough for consumers to endure the inflationary storm yet stable to minimize further pressures on prices.
The headline jobs number “reinforces the Fed’s assessment of a solid labor market, and I think this adds further justification for the Fed’s new aggressive pathway to higher interest rates in order to rein in inflation,” Lindsey Piegza, chief economist at Stifel told Yahoo Finance Live.
Allianz Investment Management senior investment strategist Charlie Ripley echoed a similar point in his commentary: “For market participants, and the Fed alike, who were looking for any signals that inflation is moderating, they are likely going to be disappointed with today’s data. Overall, none of the information in today’s report helps the Fed with the difficult task ahead and, if anything, the risk of faster tightening from the Fed in the near term remains highly conceivable.”
This labor market tightness has strongly informed the central bank’s decision to rein in monetary policy – not only as climbing wages raise the risk of more persistent inflation, but with economic strength suggesting to officials that the U.S. economy could weather less accommodative financial conditions. Ironically, that economic strength also becomes vulnerable if policymakers intervene too aggressively.
“No one knows what the level of interest rates will bring inflation back down, just as no one knows the level of interest rates that will tip this economy into recession,” Independent Advisor Alliance Chief Investment Officer Chris Zaccarelli said in a statement. “The Fed will continue to try — and talk about — engineering a soft landing, just as any good airplane pilot will tell you they are going to safely land the plane that they are flying, but unfortunately crashes happen and we need to prepare for the likelihood that either inflation will continue to run too far ahead of a comfortable level or that the odds of recession are much higher and climbing.”
As far as any potential for stagflation —…
Read More: What economists are saying about the ‘March Madness’ jobs report