The surprise surge in nonfarm payrolls in March as hiring accelerated, suggesting that the labor market remains buoyant and supporting the view that the Fed is not in a hurry to cut rates.
On Friday, April 5, the U.S. Department of Labor released data showing that the U.S. non-farm payrolls in March surged by 303,000 more than expected, the largest increase since May last year, not only far exceeding the median expected value of 214,000, but also exceeding the expectations given by all analysts, the previous value was revised down from 275,000 to 270,000, and the total increase in employment from January to February this year was revised up by 22,000.
The U.S. unemployment rate was 3.8% in March, in line with expectations and down from 3.9% previously. So far, the unemployment rate has remained below 4% for 26 consecutive months, the longest since the late 60s of the 20th century.
Average hourly earnings rose at 0.3% m/m, in line with expectations, and was revised upwards to 0.2% from 0.1% in February, while average hourly earnings, which are considered an important indicator of inflationary pressures, fell from the previous month to 4.1% and remained unchanged at 4.3%, in line with expectations and the lowest level since June 2021.
The year-on-year decline in average hourly earnings may be due to a modest increase of 0.1 hours per week for all private nonfarm payrolls to 34.4 hours in March.
The labor force participation rate unexpectedly rose to 62.7%, up 0.2 percentage points from February and above expectations of 62.6%.
By sector, the non-farm payrolls report is divided into two parts: the household survey and the enterprise survey. After several months of decline, real employment in household surveys rebounded, increasing by 498,000.
By sector, job growth was mainly driven by healthcare, leisure and hospitality, and construction. Healthcare led the increase with 72,000 new jobs, followed by government (71,000), leisure and hospitality (49,000) and construction (39,000). In addition, the retail trade sector contributed 18,000 people, while the "other services" category increased by 16,000.
By type, the number of new jobs was mainly driven by part-time jobs, with the total number of full-time jobs falling by 6,000 while the total number of part-time jobs soaring by 691,000.
Other employment data released this week also reflect that the labor market remains resilient. JOLTS data released on Tuesday showed a slight rise in both job openings and hirings in February. The "small non-farm" ADP report released on Wednesday showed that private sector jobs were added by 185,000 more than expected in March.
Market reaction
After the release of the March non-farm payrolls report, the swap market lowered its expectations for a Fed rate cut in 2024, postponing the Fed's first rate cut from July to September, and reducing the probability of a rate cut in June to about 52%. Traders now expect only about 67 basis points of rate cuts for all of 2024, down from the three 25 basis point cuts hinted at by Fed officials.
The three major U.S. futures narrowed gains before the S&P 500 and Nasdaq 100 futures climbed to intraday highs.
The U.S. dollar index rose more than 30 points to 104.52 in the short term.
The US 10-year Treasury yield surged about 5bp to 4.372%.
Analyze reviews
This week, Fed Chairman Jerome Powell and a number of other senior officials spoke out, Powell stressed that the labor market is "strong but rebalanced", and many other senior officials also stressed that there is no rush to cut interest rates at this time, and the non-farm payrolls data seems to provide support for their position.
Some media believe that the rising participation rate and strong job growth have not led to faster wage growth, which may indicate that the momentum of job growth is "real". At the same time, the article notes that it is difficult to see any reason for a rate cut at a time when the labor market is so strong and inflation is clearly "stationed" above the target.
Priya Misra, a portfolio manager at JPMorgan Chase, argues:
"If the CPI and PCE reports later this month show signs of picking up in services inflation, the Fed's 'patience' could run out. I think the market's reaction is reasonable – interest rates are rising and risk sentiment is weakening. I think risk assets are starting to focus on interest rates now. ”
"Ahead of this week, risk assets have turned a blind eye to interest rate movements, as January and February rate movements could be seen as noise. But if the economy continues to overheat, the market will question the Fed's interest rate cut policy, and the shadow of the Fed's rate hike will return to the market. ”
Seema Shah, Chief Global Strategist at Principal Asset Management, said:
"At first glance, the jobs report is leaning towards three rate cuts. However, the average hourly earnings data was in line with expectations, and as Powell made clear in his recent speech, a strong labor market is not a cause for concern if price pressures ease...... Next week's CPI report will be crucial in interest rate cut expectations. But today's report should reassure markets that if the Fed doesn't cut rates in June, it's because the economy remains strong and incomes should maintain their upward momentum. ”
Financial journalist Michael MacKenzie said that while yesterday's risk aversion prompted traders to price in a rate cut closer to the Fed's expectation of 75 basis points, today's surprise US jobs data wiped out the move. Michael noted:
"Rate cut bets now show that September has been fully priced in, not July. ”
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