Employment Check

Market Minute

April 2023 – By Scott Rosenquist, CFA®

Employment data for the month of March showed continued job growth but at a more subdued pace compared to the start of the year. According to the Bureau of Labor Statistics (BLS), nonfarm payroll employment increased by 236,000 last month with the unemployment rate inching lower to 3.5% as more people entered the workforce. The headline number was close to economists’ expectations after several months of data coming in above estimates. Job gains were again concentrated in the service sector of the economy with leisure and hospitality leading the gains for the month.

There were other employment indicators released last week pointing to softness in the labor market. Job openings declined in the month of February to just under ten million, down from 10.56 million in January. This was the first month with job openings under ten million going back almost two years. Weekly jobless claims came in higher than expected along with upward revisions for the previous week. Wage growth also showed signs of slowing, coming in at 4.2% year over year, down from 4.6% in February.

This was the last labor report before the next Federal Reserve meeting in early May but there will be additional inflation data for the markets to consider. As of now, odds favor an additional .25% rate hike in May although these numbers are volatile and change frequently as more economic data is released. Regardless of those odds, the Fed’s rate hiking cycle is close to ending as the rapid pace of tightening financial condition start to show in the economic data. Manufacturing data has been in contraction territory for several months and services have shown signs of slowing. The recent turmoil in the regional banks is also another issue we continue to watch as banks raise lending standards and reduce lending. It remains to be seen how much this credit contraction will drag on economic growth as it has not been picked up in economic data yet. The question will eventually turn to how long interest rates can remain at these higher levels, something the short end of the Treasury market continues to weigh given the recent volatility in bond yields. 

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