A person works on a Bowlus recreational vehicle at the Bowlus factory in Oxnard, California, on February 23, 2024.
Timothy Aeppel | Reuters
March's nonfarm payroll count is likely to suggest that hiring is continuing at a solid pace, although some weakening labor market fundamentals may come into greater focus when the Labor Department releases its key report Friday morning.
According to the Dow Jones consensus forecast, employment growth is expected to reach 200,000 during this period. If true, this will mark a slowdown from the 275,000 originally reported in February, but is still a strong pace by historical standards.
But something strange has been happening in labor market reports lately: Initially strong numbers have tended to be lowered in later estimates, raising questions about whether the labor market situation is as positive as it appears.
This will be just one of several key areas of focus when the report is released at 8:30 a.m. ET.
Strong, but how strong?
The February release caused a stir with a surge that wiped out Wall Street's prospects for 198,000 new jobs. However, the revision of the previous two months also caused a stir, which reduced the number by 43,000 to 290,000 in December and by a whopping 124,000 to 229,000 in January.
For all of 2023, revisions subtracted 520,000 from the original estimates – there are three readings in total – bucking a historical trend where the final numbers are generally higher than the initial readings.
The trend “makes me question the credibility of the first number,” said Dan North, senior economist at Allianz Trade Americas. “So I will be looking for the previous month's revisions to see if they will be thrown out, and most likely they will be. So if you get a large number, you should take it with caution.” “
There is some expectation of an upside surprise on Wall Street: Goldman Sachs raised its initial forecast to 240,000, up 25,000, after strong private payroll data from ADP showed a 184,000 month-over-month gain, and other indicators.
Growth drivers
In addition to the numbers, the composition is also important, namely where the growth comes from and whether there are cracks in employment protection. The resilience of the labor market has puzzled many economists, who have spent the last two years searching for an employment-related recession that never happened.
“Companies are seeing strong demand. They have dramatically increased their productivity and are therefore hiring people for different types of jobs,” said Luke Tilley, chief economist at Wilmington Trust. “That has allowed them to deal with the high rate environment.”
However, there are areas of concern.
Household employment, which counts individual workers rather than total jobs and is used to calculate the unemployment rate, has fallen by nearly 1 million since November. The survey is more volatile and uses a much smaller sample than the establishment number that gives overall payroll growth. However, there is no obvious reason for the weakness, although some economists speculate that it could be related to the rise in illegal immigration in recent years.
Full-time employment also fell slightly last year, while the number of part-time employees increased by more than 900,000. There was also a sharp decline in temporary workers, a classic sign of a slowdown.
Inflation signals
Federal Reserve officials will monitor all of these factors for signs of inflationary pressures. Stocks have been under pressure this week as investors worried about the direction of monetary policy.
Average hourly wages are expected to have risen 0.3% in March, a jump from 0.1% in February, although the estimate for the annual increase is 4.1%, or 0.2 percentage points lower.
If consensus expectations hold true, this is unlikely to impact the Fed's side, which is expected to begin gradually cutting interest rates starting in June, according to futures market prices tracked by CME Group.
“Unless there is an extremely positive or downright tragic employment report, they will stay the course,” North said. “They have been putting pressure on the market very clearly recently, saying we are in no hurry and inflation has not gone down to 2%.”
North said he expects the Fed to wait until July before cutting interest rates, contrary to current market expectations.
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