March Jobs Report Preview: Could Friday's Data Steer The Fed Toward Rate Cuts?

The Bureau of Labor Statistics (BLS) is set to release the much-anticipated jobs report for March on Friday at 8:30 a.m. EST.

Automatic Data Processing Inc. (ADP) provided a glimpse into private sector employment trends ahead of the BLS's report. Growth exceeded expectations for February as private employers added 184,000 jobs last month, topping the forecasted growth of 148,000 jobs, ADP states.

There were also unexpected job increases, particularly in the construction, financial services, and manufacturing sectors, according to Nela Richardson, ADP’s chief economist.

Inflation is cooling as wages rise across both goods and services sectors, ADP added.

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March's Jobs Report: What Economists Expect

• The consensus among 63 surveyed economists foresees a surge of 200,000 non-farm payrolls (NFP) in March 2024, marking a decline from the previous 275,000 increase. The predicted job additions span a broad range, from a minimum of 150,000 to a maximum of 250,000.
  
• Barclays, Goldman Sachs, Morgan Stanley, and Scotiabank stand out for their optimistic NFP growth forecasts, while Citi, CIBC, BNP Paribas, and TD Securities present estimates that fall below the consensus.
  
• The unemployment rate is expected to hold steady at 3.9%.
  
• Average hourly earnings are predicted to come in at 4.1% year-on-year, down from the previous 4.3%. On a monthly basis, earnings are expected to rise by 0.3%, advancing from the previous 0.1%.

Economist Commentary

Goldman Sachs economist Jan Hatzius stated that the stronger-than-expected ADP report for March, along with solid hiring indicators from other data, suggests a robust job market.

Particularly strong job growth in leisure, hospitality, and construction supports their prediction for a boost in jobs due to high immigration levels. As a result, Goldman Sachs has increased its job growth forecast by 25,000 to 240,000 for the upcoming report.

Wells Fargo analysts forecast that job growth slowed in March but remained robust, with an addition of 220,000 jobs.

Despite a cooling demand for new employees, low layoff rates and initial jobless claims suggest companies are retaining their workforce, aiding overall employment numbers.

A March rebound is expected, potentially lowering the unemployment rate to 3.8%. Wage growth in March is predicted at 0.3%, with the annual increase slowing to a near three-year low of 4.1%, indicating a gradual cooling of the job market.

ING predicts the upcoming U.S. jobs report will show a payroll increase of just under 200,000, primarily in local government, leisure and hospitality, and private education and healthcare services. These sectors have contributed 80% of job growth over the past 14 months, and with employment surveys indicating a hiring slowdown, little change is expected. The unemployment rate is anticipated to stay at 3.9%, with wage growth remaining modest. This scenario is likely to maintain market expectations of a Federal Reserve interest rate cut in June at about 80%.

Market Implications

Higher-than-expected NFP figures, along with strong wage increases, could dampen the expectations of near-term interest rate cuts by the Federal Reserve. Such an outcome would likely lead to an uptick in Treasury yields, a stronger dollar, and might exert negative pressure on sectors that are sensitive to interest rates.

Conversely, a cooler-than-expected jobs report, indicating slower employment growth and reduced wage pressures, could be perceived positively by the markets. This scenario would support the expectation for a more accommodative policy stance from the Federal Reserve, potentially easing monetary conditions in the upcoming months.

The previous jobs report for February, released on March 8, presented mixed outcomes. The NFP print exceeded expectations, landing at 275,000 against a forecasted 200,000, yet the January’s figure was downwardly revised from 353,000 to 229,000.

The unemployment rate rose to 3.9%, surpassing the anticipated steady rate of 3.7%, while wage growth was slightly below expectations at 4.3% versus the predicted 4.4%.

Market reactions saw the SPDR S&P 500 ETF Trust SPY closing 0.6% down for the day, while the Invesco QQQ Trust QQQ saw a more significant decline of 1.44%. Meanwhile, gold experienced a surge, rallying by 0.9%.

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