ADVERTISEMENT

U.S. Jobs Rebound Reassures on Growth But Comes With Caveats

The U.S. labour market sprang back to hit the Federal Reserve’s sweet spot, alleviating some concern about a deeper downturn.

U.S. Jobs Rebound Reassures on Growth But Comes With Caveats
A worker uses a grinder to smooth out a metal casted part in the cleaning and finishing area at the Quaker City Castings facility in Salem, Ohio, U.S. (Photographer: Ty Wright/Bloomberg)  

(Bloomberg) -- Go inside the global economy with Stephanie Flanders in her new podcast, Stephanomics. Subscribe via Pocket Cast or iTunes.

The U.S. labor market sprang back to hit the Federal Reserve’s sweet spot, alleviating some concern about a deeper downturn.

Better-than-expected hiring in March and unemployment hovering near a five-decade low signal worker demand remains robust even as employers confront economic crosscurrents. Wage gains eased, reinforcing the Fed’s message that interest rates are on hold, while the payrolls figures indicate February’s weakness was an anomaly.

“This report was welcome evidence that the economy is not falling off a cliff, there’s not a recession coming. This is the kind of report that we needed after such an eye-popping number in February,” said Ellen Zentner, chief U.S. economist at Morgan Stanley. “I would call this a normalization, after very volatile numbers in the first part of the year.”

The report aligns with Fed officials’ views that while the job market remains tight, global growth concerns weigh on the outlook and inflation is still subdued. Despite signs of recent weakness in manufacturing and retail sales, and reduced labor-force participation, the report shows the economy is broadly intact.

Payrolls rose 196,000 after a 33,000 advance, Friday’s Labor Department report showed, topping the 177,000 forecast in a Bloomberg’s survey and boosting the February tally from an initially reported 20,000 gain. U.S. stocks rose for a seventh day.

U.S. Jobs Rebound Reassures on Growth But Comes With Caveats

The jobless rate was unchanged at 3.8 percent while average hourly earnings increased 3.2 percent from the prior year, missing all estimates and down from the best pace of the expansion. Still, that leaves the Fed in an ideal position, according to Anwiti Bahuguna, senior portfolio manager at Columbia Threadneedle Investments.

“Job growth is not so strong that one starts wondering if there’ll be inflationary pressure,” and not weak enough to signal a far more significant slowdown, she said by phone. “It’s neither worrisome from a recession point of view, nor from an inflationary point of view.”

White House economic adviser Larry Kudlow reiterated that the Fed should cut interest rates to preempt any potential threats to the economy amid muted inflation.

President Donald Trump took that a step further, saying the Fed should cut rates and reverse the shrinking of its balance sheet, stepping up pressure on the central bank over monetary policy. “They should get rid of quantitative tightening” and instead restore quantitative easing, Trump told reporters at the White House Friday.

What Bloomberg’s Economists Say

“The reasons for the February stall are not clear -- part mean reversion, part weather, part reaction to the fourth-quarter market rout -- but the March data reaffirm that the economy is on sound footing.”
-- Carl Riccadonna and Yelena Shulyatyeva, economists
Click here for the full note.

The data signal a labor market solid enough to support growth in coming months even if job gains are moderating from last year’s pace. Unemployment near historic lows bodes well for consumer spending, though cooler wage gains suggest inflation will be even more muted as Fed policy makers wait to see how the economy weathers a synchronized global slowdown.

“This a perfect report for the Fed because it actually corroborates what they’ve been saying all along, which is there are no wage pressures,” Subadra Rajappa, head of U.S. rates strategy at Societe Generale SA, said in a Bloomberg Television interview. “There’s very little risk of wage inflation.”

The data come as investors expect an interest-rate cut this year after four hikes in 2018. The Fed early in 2019 removed projections for rate rises in the near term while flagging increasing economic risks amid slowing global growth.

Payroll gains were led by education and health services as well as professional and business services. Construction payrolls rebounded with a 16,000 gain while manufacturing continued to weaken with a loss of 6,000 jobs, the first decline since mid-2017. Other data had earlier shown a mixed picture for factory employment.

U.S. Jobs Rebound Reassures on Growth But Comes With Caveats

The participation rate, or share of working-age people in the labor force, decreased to 63 percent from 63.2 percent the prior month. The rate, which faces continued downward pressure as older workers retire, had ticked up in recent months as increased employer demand has pulled in more Americans.

Combined revisions for January and February added 14,000 more jobs than previously reported, though the three-month average decreased to 180,000 from 191,000.

Real Wages

That lower average “is kind of expected as the expansion continues to mature,” said Erica Groshen, a visiting senior scholar at Cornell University’s School of Industrial and Labor Relations in Ithaca, New York, and a former Bureau of Labor Statistics commissioner. She added that Americans are still getting a boost to real wages because pay gains have been outpacing those for the consumer price index, which rose 1.5 percent annually in February.

Friday’s report showed average hourly earnings rose 0.1 percent from the prior month, missing estimates, following a 0.4 percent gain. A longer workweek may also have had an impact on wages: The average for all private employees increased to 34.5 hours from 34.4 hours. A longer workweek tends to reduce average hourly pay.

Private employment also rebounded to show a 182,000 gain after an upwardly revised 28,000 increase; government payrolls expanded by 14,000.

“The ability to spend is there, we’re creating jobs, incomes continue to move higher,” Morgan Stanley’s Zentner said. “The willingness is what we didn’t have in the first quarter, and that’s tied to consumer confidence.”

--With assistance from Jeff Kearns, Chris Middleton, Sarah McGregor and Sophie Caronello.

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns

©2019 Bloomberg L.P.