Due to accelerated hiring, the number of new non-farm jobs unexpectedly surged in March, indicating that the labor market is still active, providing support for the view that the Federal Reserve is in no rush to cut interest rates.
On Friday, April 5, the U.S. Department of Labor released data showing that the U.S. non-farm payrolls surged by 303,000 more than expected in March, the largest increase since May last year. Not only did it far exceed the median expectation of 214,000, it also exceeded all expectations. Analysts' expectations were revised down from 275,000 to 275,000, and the employment growth from January to February this year was revised up by a total of 22,000.
The U.S. unemployment rate in March was 3.8%, in line with expectations and down from the previous value of 3.9%. At this point, the unemployment rate has remained below 4% for 26 consecutive months, setting a record for the longest time since the late 1960s.
The average hourly wage growth rate was 0.3% month-on-month, in line with expectations. The value in February was revised up from 0.1% to 0.2%. The year-on-year growth rate of the average hourly wage, which is regarded as an important indicator of inflationary pressure, fell from the previous month to 4.1%. The value remained unchanged at 4.3%, in line with expectations and the lowest level since June 2021.
The year-over-year decline in average hourly earnings may be due to the fact that the average weekly working hours for all private non-farm employees rose slightly by 0.1 hours in March to 34.4 hours.
The labor force participation rate unexpectedly rose to 62.7%, up 0.2 percentage points from February and higher than the expected 62.6%.
In terms of sectors, the non-farm employment report is divided into two parts: household survey and business survey. After months of decline, real employment in household surveys rebounded, rising by 498,000.
In terms of industries, employment growth mainly came from health care, leisure and hospitality, and construction. Among them, the number of new jobs in the health care field led the increase, with 72,000, followed by the government sector (71,000), the leisure and hospitality industry (49,000), and the construction industry (39,000). In addition, the retail trade industry contributed 18,000 people, and the "other services" category increased by 16,000 people.
By type, the new number of jobs was mainly driven by part-time jobs. The total number of full-time jobs decreased by 6,000, while the total number of part-time jobs surged by 691,000.
Other employment data released this week also reflected that the labor market remains resilient. JOLTS data released on Tuesday showed job openings and hiring both rose slightly in February. The "small non-agricultural" ADP report released on Wednesday showed that private sector jobs increased by 185,000 more than expected in March.
Market Reaction
After the release of the non-farm payrolls report in March, the swap market lowered expectations for the Federal Reserve to cut interest rates in 2024 and postponed the expected timing of the Federal Reserve's first interest rate cut from July to September. The probability of an interest rate cut in June dropped to about 52%. Traders now expect only about 67 basis points of rate cuts throughout 2024, less than the three cuts of 25 basis points each suggested by Fed officials.
The three major U.S. stock index futures narrowed their gains, and then the S&P 500 Index and Nasdaq 100 Index futures climbed to intraday highs.
The U.S. dollar index rose more than 30 points in the short term to 104.52.
The U.S. 10-year Treasury bond yield surged by about 5bp to 4.372%.
Analysis and Comments
This week, Federal Reserve Chairman Powell and many other senior officials have spoken intensively. Powell emphasized that the labor market is "strong but returning to balance." Many other senior officials also emphasized that there is no rush to cut interest rates. Non-farm data seems to provide support for their stance.
Some media believe that the increase in participation rate and strong employment growth have not led to an acceleration in wage growth, which may indicate that the momentum of employment growth is "real." The article also pointed out that it is difficult to see any reason to cut interest rates when the labor market is so strong and inflation is clearly "stationed" above the target.
Priya Misra, portfolio manager at J.P. Morgan, opined:
"If the CPI and PCE reports later this month show signs of a pick-up in services sector inflation, the Fed's 'patience' may run out. I think the market's reaction is reasonable -- with interest rates rising and risk sentiment subdued. I think the risk Assets are now starting to look at interest rates.”
“Prior to this week, risk assets were turning a blind eye to interest rate movements, as January and February rate movements were likely to be viewed as noise. But if the economy continues to overheat, markets 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 favored 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 moderate. ... Next week’s CPI report will be critical for 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 keep rising.”
Financial reporter Michael MacKenzie said that although yesterday's risk aversion prompted traders to price an interest rate cut closer to the 75 basis points expected by the Federal Reserve, today's unexpected employment data in the United States put this move in vain. Michael pointed out:
"Rate cut bets now show September is fully priced in, not July."