Economists anticipate that higher interest rates and an uncertain economic outlook squeezed the labor market last month. And that was before the fallout from the banking turmoil.
Lydia DePillis
After a crackling start to the year, America’s jobs engine may be running out of steam — but the worst is likely yet to come as the year progresses.
The Labor Department’s report on March hiring is due Friday morning, and the consensus among economists polled by Bloomberg is that the data will show the addition of 240,000 jobs, a marked step down from the average of 351,000 over the past three months.
That forecast was filed before several doses of more negative data, however, and any effects of the recent banking crisis are only beginning to be felt.
Initial claims for unemployment insurance, for example, jumped in February, according to data released on Thursday, after the Labor Department revised the figures to better reflect seasonal factors. The numbers show a clear upward trend in new requests for jobless benefits in recent months. Those requests were remarkably low for the past few years.
Job openings dropped sharply in February, bringing the number of openings per available worker to a level that, while still elevated, is closer to the historical average. March surveys of both manufacturers and service-industry firms came in weaker than expected, with more employers starting to say that business is contracting rather than expanding.
All of that data was collected before two midsize banks failed and concerns arose about other institutions. That development is expected to tighten lending across the economy, potentially reducing smaller businesses’ ability to expand.
“Things are clearly slowing down, and I think within the next three or four months we’ll see more evidence of that picking up the pace,” said Thomas Simons, an economist at the investment banking firm Jefferies. “By the time we get to midsummer, it looks like the labor market is in significantly weaker shape.”
Still, the labor market has produced surprises of late. Job postings gathered by the employment data firm LinkUp increased in March, driven by industries such as education and personal care services, and showing that demand for workers may not have run out.
Lydia DePillis
After a crackling start to the year, America’s jobs engine may be running out of steam — but the worst is likely yet to come as the year progresses.
The Labor Department’s report on March hiring is due Friday morning, and the consensus among economists polled by Bloomberg is that the data will show the addition of 240,000 jobs, a marked step down from the average of 351,000 over the past three months.
That forecast was filed before several doses of more negative data, however, and any effects of the recent banking crisis are only beginning to be felt.
Initial claims for unemployment insurance, for example, jumped in February, according to data released on Thursday, after the Labor Department revised the figures to better reflect seasonal factors. The numbers show a clear upward trend in new requests for jobless benefits in recent months. Those requests were remarkably low for the past few years.
Job openings dropped sharply in February, bringing the number of openings per available worker to a level that, while still elevated, is closer to the historical average. March surveys of both manufacturers and service-industry firms came in weaker than expected, with more employers starting to say that business is contracting rather than expanding.
All of that data was collected before two midsize banks failed and concerns arose about other institutions. That development is expected to tighten lending across the economy, potentially reducing smaller businesses’ ability to expand.
“Things are clearly slowing down, and I think within the next three or four months we’ll see more evidence of that picking up the pace,” said Thomas Simons, an economist at the investment banking firm Jefferies. “By the time we get to midsummer, it looks like the labor market is in significantly weaker shape.”
Still, the labor market has produced surprises of late. Job postings gathered by the employment data firm LinkUp increased in March, driven by industries such as education and personal care services, and showing that demand for workers may not have run out.
Jeanna Smialek
Federal Reserve officials spent the early part of 2023 warning that they might have to raise interest rates higher than they previously anticipated because inflation was more stubborn and the job market stronger than many expected.
But several high-profile bank blowups last month have changed that calculation. While central bankers are still closely watching incoming job market data, including on wage growth, they are now also taking into account the possibility that banks and other lenders will become more cautious in response to the tumult — slowing the economy and reducing the need for the Fed to raise borrowing costs as drastically to cool activity.
That makes for more complicated circumstances as the Labor Department releases fresh job market data Friday. Fed officials will be watching the numbers for any signs that employers are becoming less voracious for new hires, and they will be keeping an eye on wage data for further confirmation that pay gains are gradually cooling down. A slowdown would confirm to them that their policy changes are beginning to work as intended.
Many central bankers believe that it would be difficult to wrestle price increases back to their goal of 2 percent inflation with wage growth as fast as it has been recently. When employers are paying more, they are likely to try to charge more to cover those climbing labor costs. And when households are earning more, they may be able to absorb price increases without pulling back on spending.
Yet central bankers will not be able to rely solely on the latest labor, wage and price data as they chart their policy course. Officials think that credit is likely to become more scarce and expensive after Silicon Valley Bank’s collapse on March 10 sent tremors through the banking industry, though that will take time to show up in the economy.
Officials raised rates at their March 22 meeting and forecast that they may raise them one more time this year. But Jerome H. Powell, the Fed chair, underlined that the Fed could do more or less depending on the severity of the fallout.
“We haven’t really seen the tangible effects in the data yet,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. Before the bank turmoil, the Fed was putting “greater emphasis” on the incoming data flow, he said. He still expects the Fed to raise rates next month, but said officials will be watching for signs that credit is getting harder to come by.
“It probably lowers the bar for them to pause at some point,” he said.
Joe Rennison
Investors are braced for a short, bruising bout in the bond market on Friday, fearing new numbers on the pace of hiring will add to signs that the economy is slowing down.
Stock markets are closed for the Easter holiday but the bond market is open for half the day, giving those traders limited time to react after the jobs data is released.
Despite stocks settling from the fallout of the bank collapses in March, bonds have seen wild swings as investors grapple with stubbornly high inflation that has required higher interest rates to control it, and a slowing economy that has resulted from those rate increases.
The Federal Reserve is trying to slow the economy just enough to lower inflation without tipping it into recession. And investors have zeroed in on jobs as a crucial indication of how the economy is reacting to the Fed’s decisions.
If the number of jobs added in March is a lot higher than expected, that suggests the economy is still running hot and the Fed will continue lifting rates, raising costs for consumers and companies. If the number is a lot lower, investors are likely to read it as a sign that the economy is slowing more quickly and that the risk of recession is greater.
“This is a big number,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “The real question is whether the recession is already here or not and this jobs number should let us know that one way or the other.”
This week, government bond yields have dropped sharply following data showing weaker than expected manufacturing activity, fewer job openings, a slowing service sector and higher unemployment claims.
The two-year Treasury yield has fallen roughly 0.3 percentage points since Monday, to 3.83 percent, as investors bet on the economy slowing more quickly, curtailing inflation and eventually leading the Fed to cut interest rates to support the economy.
That was a big move for a market that typically changes by hundredths of a percentage point each day, and navigating the volatility has been challenging for traders, with the two-year yield swinging within a wide range of around 0.5 percentage points.
“We have broken through so many levels this week,” said Andrew Brenner, head of international fixed income at National Alliance Securities. “You don’t have these violent moves without people panicking and cutting their losses.”
