Market Analysis

U.S. job growth is anticipated to have slowed moderately in March, while wages remained high, indicating the economy finished the first quarter on a solid note and potentially postponing expected interest rate cuts by the Federal Reserve this year.

According to the Labor Department's report due on Friday, it's expected that the unemployment rate will remain below 4% for the 26th consecutive month, marking the longest such period since the late 1960s. Despite the Federal Reserve's series of rate hikes since March 2022 to combat inflation, the U.S. economy continues to outperform its global counterparts.

Economists suggest that most businesses secured lower borrowing costs prior to the Fed's tightening measures, providing some protection against higher rates and enabling them to retain their employees. Additionally, household finances remain robust, supporting consumer spending, while increased immigration over the past year has bolstered the labor market.

David Page, head of macro research at AXA Investment Managers in London, notes that while the labor market appears to be loosening, it's not due to a decline in demand or job losses, which is a positive sign.

Estimates suggest nonfarm payrolls likely increased by 200,000 jobs in March, following a rise of 275,000 in February. Industries sensitive to interest rates, such as construction, are experiencing a boost in hiring due to improved financial conditions, while sectors like healthcare, leisure, hospitality, and state/local government are still below pre-pandemic levels in terms of employment.

Despite expectations for slower job growth, economists believe that hiring in these sectors will persist, providing a foundation for continued employment expansion. However, the National Federation of Independent Business reports a decrease in small businesses planning to add jobs in the coming months, which could impact overall payroll gains.

Dean Maki, chief economist at Point72 Asset Management, points out that the negative effects of rate hikes on the labor market have largely materialized, with easing financial conditions now contributing to improved job growth across various sectors.

While financial markets anticipate rate cuts starting in June, Federal Reserve Chair Jerome Powell has indicated that the central bank is not in a rush to implement them, especially after maintaining the current policy rate range of 5.25%-5.50% last month.

Average hourly earnings are projected to have increased by 0.3% in March, with the annual wage growth rate expected to have slowed to 4.1% from 4.3% in February. This level of wage growth aligns with the Fed's 2% inflation target, although inflation measures are currently above target.

The unemployment rate is forecasted to remain unchanged at 3.9% in March, reflecting weak household employment numbers in recent months. However, economists attribute this weakness to increased labor supply through immigration, which may not have been fully accounted for in the employment report.

Overall, economists believe that the employment situation may be stronger than previously estimated, especially considering updated projections for immigration flows. This could allow the Fed to maintain a slightly stronger economy before considering rate cuts.

Paraphrasing text from "Investing" all rights reserved by the original author.