Labor Market is Strong but Loosenin
This week's data broadly added to evidence that the labor market is loosening. The big release of the week was the nonfarm payrolls report on Friday morning, which showed employers added 236K net new jobs in March. This is still above the pre-pandemic run rate, but marks the lowest pace of job growth since late 2020 and is a marked move lower from the near 350K jobs added on average over the past three months. The unemployment rate ticked lower to 3.5% and labor force participation rose for the fourth straight month. Improved supply has helped soften the trend in earnings growth. Average hourly earnings are up just 3.2% at a three-month annualized rate, which is more consistent with the Fed's 2% inflation target (chart). This is very much what the Fed is looking for in terms of curing the labor market imbalance with more workers returning to the labor force.
Labor weakness was evident in other data as well. The March ISM reports showed a softening in hiring, consistent with layoffs in manufacturing and a slower pace of hiring in services. Job openings fell below 10 million, registering the lowest level since May 2021. The number of openings per unemployed worker also fell to 1.67. This remains above the 1.2 pre-pandemic ratio, but marks a 15-month low and is consistent with a topping out in labor demand—as is the fact that the lowest share of small businesses since May 2020 now plan to add workers in coming months. Finally, past revisions to initial jobless claims, which was one of the key data points stubbornly demonstrating strength, also now show a clear uptrend in recent months. All these data signal the labor market is weakening, albeit from a very strong starting point.
Beyond labor, there are growing signs of weakness elsewhere in the economy. Both ISM reports demonstrated economic slowdown last month. The ISM manufacturing index slid to its lowest level since 2020 and is consistent with a sector that has now been in correction for five straight months. Every sub-component was in contraction (below the breakeven 50) for the first time since 2009. At the same time, the services report called service sector resilience into question. The services index slid sharply to 51.2 from 55.1, but most major components remain consistent with expansion. This was not a great development for the services sector, but it's too soon to call off expansion, particularly in light of a solid gain in private service-providing industries employment in March (+196K).
The good news is that there are signs of slower activity bringing reprieve to prices. The prices paid components of both ISMs declined in March, though as shown in the nearby chart the gap between the two remains large, demonstrating how integral services prices are to returning inflation to the Fed's 2% target. At 59.5, service sector price pressure remains firm, but this is the first time it has slipped below 60 since late 2020. Overall it appears we have reached the point where a broadening group of indicators is suggesting the slowdown is in train and the end of the Fed's tightening cycle is in sight.
This Week's State Of The Economy - What Is Ahead? - 08 October 2021
Wells Fargo Economics & Financial Report / Oct 15, 2021
September\'s disappointing employment report clearly takes center stage over this week\'s other economic reports. Nonfarm employment rose by just 194,000 jobs, as employers continue to have trouble finding the workers they need.
This Week's State Of The Economy - What Is Ahead? - 03 November 2023
Wells Fargo Economics & Financial Report / Nov 08, 2023
Although payroll growth is easing, the labor market remains relatively tight. The unemployment rate inched up to 3.9% in October, slightly higher than the cycle low of 3.4% first hit in January 2023, but still low compared to historical averages.
This Week's State Of The Economy - What Is Ahead? - 06 March 2020
Wells Fargo Economics & Financial Report / Mar 07, 2020
An inter-meeting rate cut by the FOMC did little to stem financial market volatility, as the number of confirmed COVID-19 cases continued to climb.
This Week's State Of The Economy - What Is Ahead? - 27 August 2021
Wells Fargo Economics & Financial Report / Aug 30, 2021
In other economic news, output continues to ramp up across the U.S., even as the resurgence in COVID cases is leading to some pullback in consumer engagement.
This Week's State Of The Economy - What Is Ahead? - 10 November 2020
Wells Fargo Economics & Financial Report / Nov 17, 2020
The U.S. election has come and gone, but we have not made any meaningful changes to our economic outlook, which continues to look for further expansion in the U.S. economy in coming quarters.
This Week's State Of The Economy - What Is Ahead? - 12 May 2023
Wells Fargo Economics & Financial Report / May 17, 2023
In April, the CPI rose 0.4% on both a headline and core basis, keeping the core running at a 5.1% three-month annualized rate. However, details pointed to price growth easing ahead.
This Week's State Of The Economy - What Is Ahead? - 18 September 2020
Wells Fargo Economics & Financial Report / Sep 15, 2020
The details were generally more favorable. The retail sectors hurt most by the pandemic saw gains in August, factory output is growing and soaring homebuilder confidence suggests soft construction data this week may be transitory.
This Week's State Of The Economy - What Is Ahead? - 17 February 2023
Wells Fargo Economics & Financial Report / Feb 20, 2023
Inflation in the U.K. receded for the third straight month in January, with the headline rate coming in at 10.1% year-over-year. In bad news, this is still five times the Bank of England\'s 2% target.
This Week's State Of The Economy - What Is Ahead? - 03 June 2022
Wells Fargo Economics & Financial Report / Jun 08, 2022
While talk of recession has kicked up in recent weeks, the majority of economic data remain consistent with modest growth.
This Week's State Of The Economy - What Is Ahead? - 06 December 2019
Wells Fargo Economics & Financial Report / Dec 07, 2019
The latest hiring data are an encouraging sign that the U.S. economy is withstanding the global slowdown and continued trade-related uncertainty.
