The US economy added 431,000 jobs in March, the BLS said Friday.
It was another solid read on a hopelessly distorted labor market. Although the headline technically counted as a “miss,” the range of estimates was wide and a ~60,000 deviation from consensus in the pandemic era isn’t particularly shocking, especially on an otherwise upbeat print.
Sizable upward revisions to figures from January and February offered additional evidence of underlying strength, even as they made March’s print look like a deceleration.
The US is now very close to recouping pandemic job losses.
Private payrolls rose 426,000, below estimates, but solid and consistent with ADP. Manufacturing added more jobs than expected, while leisure and hospitality notched a gain of 112,000.
The services sector still hasn’t healed entirely from the COVID shock. With March’s gains, leisure and hospitality remains 1.5 million jobs short of February 2020’s levels, or around 9% (figure below).
Food services and drinking places accounted for 61,000 jobs in March.
The unemployment rate dropped to 3.6%, below estimates and just a tick higher than the Fed’s projection for 2022 and 2023. The participation rate was up slightly, another boon or, if you’re the sarcastic, glass half-empty type, another green light for the Fed to hike aggressively on the way to reversing labor market gains. The prime age rate hit a two-year high.
Speaking of ostensible support for rate hikes, average hourly earnings were a bit hotter than expected at 5.6% YoY. The MoM gain, at 0.4%, was in line.
Real wage growth remains deeply negative (figure above). As a reminder (which regular readers scarcely need), six of the last eight recessions were accompanied by negative real wage growth.
The read-through for the Fed is straightforward. March’s jobs report brought the lowest unemployment rate since February 2020, the highest participation rate since March of 2020 and, if you don’t count the anomalous figures from April and May of 2020, the hottest annual wage growth on record.
All of that, plus scorching-hot inflation, makes the case for Fed hikes. Just like the inevitable downturn those hikes will help facilitate will make the case for Fed cuts starting 12 to 14 months from today.
I am all set (investing wise) for that “12-14 months from today”. Got the cash plus dividend income I need to get through until the Fed turns back on the IV.
Now, I know your gonna laugh, but since it’s April fool’s day, here’s my attempt at humor. This is my first attempt to suggest that the Fed’s total MBS holdings are a price divided into the 30 year mortgage rate. I was a thinking that maybe there’s a way to view this thing like a p/e ratio in terms of a valuation metric and where things might need to go in terms of normalized old trends.
If the Fed dumps it’s tsunami of MBS into the mortgage market, that’ll probably take some time to accomplish, but what happens on the other side of that equation when mortgage rates have spiked beyond 8% or wherever they’re going?
Fred link:
https://fred.stlouisfed.org/graph/?g=NKko
The other possibility is that the economy cools down enough for the Fed to pause after one or a few hikes and for a slowdown or downturn to be mild. Not exactly a soft landing but maybe not a disaster. We shall see.