Another upside surprise in the books. Nonfarm payrolls expanded 303K in March, surpassing all estimates submitted to Bloomberg. Modest upward revisions to the prior two months of data sweeten the outturn and point to a labor market in full bloom.
Digging into the industry details, healthcare (+81K), government (+71K) and leisure & hospitality (+49K) saw solid additions. With this report, jobs in the leisure & hospitality sector finally surpassed their pre-pandemic level, which corroborated the increase in the employment component of the ISM services index in March. As the service sector continues to staff up to meet robust demand, service firms have little incentive to show restraint on pricing.
The household survey's separate measurement of employment also showed a robust gain of 498K in March, which far outstripped the 29K decline in the number of unemployed and led the labor force to expand by 469K. Consequently, the unemployment rate ticked down 0.1 percentage points to 3.8%. The labor force's improvement coincides with labor demand stabilizing at an elevated level and quits moving sideways at a low level. The greater pool of available workers amid cooled employee churn points to subsiding wage growth in the months ahead. Average hourly earnings picked up 0.3% in March, but slipped 0.2 percentage points on a year-over-year basis to 4.1%.
The continued strength in hiring suggests less urgency for policymakers at the Federal Reserve to lower the target range of the fed funds rate. Recent comments from FOMC members have homed in on the jobs market's underlying momentum as justification to wait and allow for more inflation data. The progress in goods disinflation attributable to the normalization in supply chains in the wake of the pandemic has largely run its course, implying softer demand, especially for services, will be needed to pull consumer price inflation down to the 2% target on a sustainable basis. Yet with continued tightness in the labor market supporting solid wage growth, demand is showing few signs of weakness.
Before the payroll report, markets had priced in a roughly 60% chance of the FOMC cutting its target range by 25 bps in June. That probability is sitting closer to 53% at the time of this writing. With expectations for the start of policy easing being pushed back later into the year, elevated borrowing costs will continue to weigh on interest-rate sensitive sectors of the economy. Construction spending slipped 0.3% in February, marking the second straight month of decline. Broad-based retrenchment in nonresidential construction outweighed the steady climb in single-family home building. We suspect investment in nonresidential structures will contract in the coming quarters as commercial construction project starts have slowed to a crawl amid tight credit conditions.
The factory sector also remains in the doldrums. In February, manufacturing production was down nearly half-a-percentage-point on a year-ago basis. Despite the contraction in output, the ISM manufacturing index unexpectedly broke into expansionary territory in March for the first time in 16 months. Improving expectations for new orders in the second half of the year helped lift overall sentiment. While it is encouraging to see the ISM back above 50, we remain cautious on the trajectory of industrial production until we have more clarity on the timing of monetary policy easing.
This Week's State Of The Economy - What Is Ahead? - 11 August 2023
Wells Fargo Economics & Financial Report / Aug 15, 2023
During July, both the headline and core Consumer Price Index (CPI) rose 0.2%. On a year-over-year basis, the core CPI was up 4.7% in July. Recent signs have been more encouraging, with core CPI running at a 3.1% three-month annualized pace.
August 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Aug 22, 2020
Downstream involves the refining and processing of oil and natural gas into fuels, chemicals, and plastics. All three sectors are well-represented in Houston.
28 January 2021 Economic Outlook Report
Wells Fargo Economics & Financial Report / Feb 08, 2021
In our recently released second report in this series of economic risks, we focused on the potential of demand-side factors to lead to significantly higher U.S. inflation in the next few years.
This Week's State Of The Economy - What Is Ahead? - 01 March 2024
Wells Fargo Economics & Financial Report / Mar 05, 2024
Economic data were downbeat this week, as downward revisions took some of the shine out of the marquee headline numbers. Despite the somewhat weak start to Q1, economic growth continues to trek along.
This Week's State Of The Economy - What Is Ahead? - 23 July 2021
Wells Fargo Economics & Financial Report / Jul 30, 2021
In the biggest financial news this week not connected to college football conference realignment, July\'s NAHB Housing Market Index slipped one point to 80.
This Week's State Of The Economy - What Is Ahead? - 21 May 2021
Wells Fargo Economics & Financial Report / May 25, 2021
Over the past year, the housing market has become white-hot.
This Week's State Of The Economy - What Is Ahead? - 27 September 2019
Wells Fargo Economics & Financial Report / Sep 28, 2019
The release of the transcript of President Trump\'s phone conversation with Ukraine President Volodymyr Zelenskiy and the whistle blower complaint overshadowed most of this week\'s economic reports and took bond yields modestly lower.
This Week's State Of The Economy - What Is Ahead? - 10 November 2022
Wells Fargo Economics & Financial Report / Nov 11, 2022
Relief in October inflation gives the FOMC the ability to slow the pace of rate hikes ahead. But make no mistake, the Fed\'s job of taming inflation remains far from over.
This Week's State Of The Economy - What Is Ahead? - 08 May 2020
Wells Fargo Economics & Financial Report / May 15, 2020
April nonfarm payrolls confirmed what we already knew—the labor market is collapsing. By the survey week of April 12, net employment had fallen by 20,500,000 jobs.
This Week's State Of The Economy - What Is Ahead? - 15 November 2019
Wells Fargo Economics & Financial Report / Nov 16, 2019
Retail sales beat expectations and rose 0.3% in October, reflecting the ongoing strength of the consumer. Control group sales, a major input to GDP, also increased 0.3%.
