The headline job increase of 275,000 in February was overshadowed by sharp downward revisions to the previous months’ data, a rise in unemployment and a slowing in wage growth, according to many economists.
The unemployment rate climbed to 3.9% in February, compared with 3.7% in January. Economists had predicted the rate would remain at 3.7%. Meanwhile, wage growth slowed to 4.3% annually, from 4.4%.
The market’s response, characterized by declining Treasury yields and a weakening dollar, suggests that investors anticipate the Federal Reserve will implement rate cuts sooner rather than later.
Economist reactions indicated the labor market data could support market expectations for rate cuts as jobs growth slows in the coming months.
It was noted that a significant proportion of the jobs created continued to be in the health care sector, which has averaged around 58,000 in the past 12 months and in government jobs which have averaged 53,000.
‘A Downturn Is Coming’
Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics, headlined his commentary with the austere line: “The current trend in payrolls is steady, but a clear downturn is coming.”
He pointed to recent data from the National Federation of Independent Business that showed hiring intentions from small businesses “which employ about half the workforce” are falling.
“The drop in hiring plans is consistent with private payroll growth slowing sharply in the spring. For the first time in this cycle, the trends in both hiring and firing are worsening at the same time,” he added.
James Knightley, chief international economist at ING was of a similar mind. His headline read: “U.S. jobs report hints at a gradual cooling despite a strong headline.”
He added: “Big downward revisions, weak wages and rising unemployment suggest things are not quite as robust as the headline indicates. Moreover, lead indicators are clearly weakening and a slowdown looks to be on the way.”
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Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, said: “We think today's report is a positive for the soft landing scenario. The jobs market is still strong, but the downward revisions and higher than forecast unemployment rate is an offset.”
Charlie Ripley, senior investment strategist for Allianz Investment Management, said the report was a “mixed bag of data” for market participants to digest.
He said: “As it pertains to the Fed, the data is not going to do much to move the needle as the focus for Powell and other Fed members will continue to be on the inflation metrics and any signs of inflation rebounding will continue to push rate hikes farther out on the calendar.”
A More Positive Reaction On Social Media
On social media, Joseph Brusuelas, chief economist at RSM US, was more upbeat.
Posting on X, he said: “One reason behind the booming economy is the fact that 83.5% of prime aged workers 25-54 are on the job. If one loses a job, they get one.
“Jobs are plentiful and average hourly earnings are up 4.3% year-on-year. This is what full employment looks like if one cares to look.”
Mohamed El-Erian, chief economic adviser to Allianz, noted both sides of the argument on the jobs data and said: “Those fearing an overheating labor market will point to another beat on job creation and higher hours worked, and those seeing a goldilocks labor market will point to the large revisions to the last two readings and the modest monthly increase in hourly earnings.”
He added: “This contrast translates to no material impact on economic forecasts and policy views. It will, however, boost asset prices given the incoming trading/investing mindset that “both good/bad news for the economy is good for markets.”
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