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? - 14 June 2024
Wells Fargo Economics & Financial Report / Jun 20, 2024
On Wednesday, the May CPI data showed that consumer prices were unchanged in the month, the first flat reading for the CPI since July 2022.
May 2020 Economy at a Glance
Wells Fargo Economics & Financial Report / May 19, 2020
The U.S. is in a severe recession caused by the sudden shutdown due to the COVID-19 pandemic. Since the lock down began, the nation has lost 21.4 million jobs.
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? - 22 May 2020
Wells Fargo Economics & Financial Report / May 25, 2020
The re-opening of the country is getting underway, with all 50 states starting to roll back restrictions.
This Week's State Of The Economy - What Is Ahead? - 21 August 2020
Wells Fargo Economics & Financial Report / Aug 18, 2020
Despite indications of lost momentum elsewhere, residential construction activity is picking up steam.
This Week's State Of The Economy - What Is Ahead? - 18 November 2022
Wells Fargo Economics & Financial Report / Nov 21, 2022
The resiliency of the U.S. consumer was also on display, as total retail sales increased a stronger-than-expected 1.3% in October, boosted, in part, by a 1.3% jump in motor vehicles & parts and a 4.1% rise at gasoline stations.
This Week's State Of The Economy - What Is Ahead? - 19 May 2023
Wells Fargo Economics & Financial Report / May 23, 2023
Economic data continue to suggest the U.S. economy is only gradually losing momentum. Consumers continue to spend, and industrial and housing activity are seeing some stabilization.
The Regional Breakdown Of A Labor Market In Meltdown
Wells Fargo Economics & Financial Report / May 26, 2020
Employment fell in all 50 states and 43 states saw their unemployment rate rise to a record in April. The damage is already hard to fathom-a 28% unemployment rate in Nevada and still another month of job losses ahead.
This Week's State Of The Economy - What Is Ahead? - 07 April 2023
Wells Fargo Economics & Financial Report / Apr 10, 2023
Employers added jobs at the slowest pace since 2020 in March, job openings fell and an upward trend in initial jobless claims has emerged.
This Week's State Of The Economy - What Is Ahead? - 14 October 2020
Wells Fargo Economics & Financial Report / Oct 14, 2020
The global mobility playing field is equalizing. Major European countries such as Germany and France have seen a slowdown in recent weeks, leaving them right in line with the United States relative to the January baseline.
