Nonfarm payrolls increased by 431K in March following an upwardly revised 750K earnings (two-month revision +95K) in February. The market expectation was that there would be an employment increase of 490K, although the data is slightly below expectations, it seems to have been realized at a standard that will be accepted as close to half a million in terms of tight labor market criteria. The unemployment rate fell to 3.6%, below the expected 3.7% (pre-pandemic rate 3.5%, Fed's 2022 projection 3.4%) and the labor force participation rate rose from 62.3% to 62.4%. However, employment is 1.6 million lower than its pre-pandemic level in February 2020. Wage increases accelerated. The data is likely to support a more hawkish Fed policy in the months ahead.

 

If we look at the sub-items; Significant job gains continued in the leisure and hospitality, professional and business services, retail trade and manufacturing sectors. Employment in the entertainment and accommodation sector continued its momentum with an increase of 112K in March. Job growth continued in professional and business services, which added 102K jobs in March. Retail employment increased by 49K in March, while gains were made in general stores (+20K) and food and beverage (+18K). Manufacturing added 38K jobs in March. In March, employment in financial activities increased by 16K, with gains in real estate and leasing and leasing (+14K) and securities, commodity contracts and investments (+5K). Healthcare employment changed little in March (+8K) after a large increase in the previous month. The average workweek for all employees decreased by 0.1 hour to 34.6 hours in March. In manufacturing, the average workweek for all workers remained unchanged at 40.7 hours, and overtime decreased by 0.1 hours to 3.4 hours. The average work week for production and non-supervision workers decreased by 0.1 hour to 34.1 hours.

 

Average hourly earnings rose 0.4% from February and 5.6% from a year ago, showing the highest wage inflation since May 2020. The previous month's wage increase was revised slightly upwards from 0% to 0.1%. However, inflation -- at its highest level since the early 1980s -- is effectively cutting wages, outstripping wage growth. The fact that real wage growth is still negative restricts Americans' consumption demands and leads to demand for more wage increases. In this respect, more reference should be made to the priority of the Fed in dealing with inflation in order to avoid the spiral effect of the meltdown of wage increases in the face of inflation and further wage increases, and at the same time to limit the negative effects that may arise from demand imbalance.

 

Fed futures funds rate pricing… Source: Bloomberg, CME Fedwatch

 

Data show that the recovery in the labor market continues at a strong pace as employers are more successful in filling a record number of positions. Inflation, declining household savings and solid wage growth are factors that could attract more people to the labor market in the coming months. In other words, increased financial needs will contribute to the flexible pace of recruitment. Covid, which previously posed a downside risk to employment, has now become a less effective factor with the removal of restrictions. Therefore, it is reasonable to say that the risks are less in terms of service-related sectors compared to the past.

 

If we look at the Fed's point of view;

 

Fed officials, including Powell, have said in recent weeks that they will support more aggressive monetary policy to curb decades of high inflation, including a possible 50 basis point increase at the next policy meeting in May. A tightening, robust labor market is likely to underpin the view of Fed hawks that the US economy can handle a series of rate hikes expected to continue into next year. The irritating fact is the short-term bond yield – the long-term bond yield spread, which is heading towards the negative trend and the recession probability it gives. After the FOMC, the path looks hawkish, but it is necessary to consider that the Fed will not want to overdo it and harm growth and employment, so it will evaluate its broad-term moves accordingly. Basically, it will not be a surprise anymore that the Fed raises interest rates by 50 basis points at the May meeting.

Kaynak Tera Yatırım
Hibya Haber Ajansı