By Lucia Mutikani
WASHINGTON (Reuters) – The US economy likely continued to add jobs at a brisk pace in March, although the job market is losing its luster as Federal Reserve rate hikes dampen demand.
Friday’s closely-watched jobs report from the Labor Department, which is also expected to show an unchanged 3.6% unemployment rate and modest wage gains over the past month, is likely to be welcomed by Federal Reserve officials as they consider whether to halt its fastest-paced rate Hiking cycle since the 1980s. The report is released at 8:30 am EDT (1230 GMT) on a day when most financial markets are closed for Good Friday.
As with recent economic data, it would be too early for stress in financial markets, triggered by the collapse of two US regional banks in March, to show up in the payrolls report.
“We’re still looking at numbers, which are still pretty strong,” said Sarah House, senior economist at Wells Fargo in Charlotte, North Carolina. “We are still dealing with enormous inflation. The Fed is likely to hike again in May, but we expect this to be the last hike this cycle.”
Nonfarm payrolls are likely to have risen by 239,000 over the past month, according to a Reuters poll of economists. Though that would be the smallest gain since December 2020, job growth would still be more than double the 100,000 jobs per month economists say are needed to keep up with growth in the working-age population.
The economy created 311,000 jobs in February. Some of the expected slowdown in hiring is attributed to the fading boost from unseasonably mild weather in January and February.
Estimates ranged from 150k to 342k, with downside risks. The Labor Department’s annual revisions to weekly claims reports and rolling claims data, released Thursday, showed significant improvements in both series. Economists said the revisions have brought the claims series closer to other data suggesting the job market is slowing.
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Surveys from the Institute for Supply Management offered a bearish view of the job market this week. Job vacancies fell below 10 million in late February for the first time in almost two years, although there were 1.7 job vacancies for every unemployed person that month, government data showed.
LOSING GLOSS
The Fed raised its benchmark overnight interest rate by a quarter of a percentage point last month, but indicated it was about to pause further rate hikes to highlight the stress in financial markets. The Fed has raised interest rates by 475 basis points since last March from near zero to the current range of 4.75% to 5.00%.
Average hourly wages are expected to rise 0.3% in March after rising 0.2% in February. That would bring annual wage growth down to 4.3% from February’s 4.6%, still too high to be consistent with the Fed’s 2% target.
The labor market is expected to ease significantly from the second quarter as companies react more strongly to a slowdown in demand caused by higher borrowing costs.
Credit conditions have also tightened, which could make access to finance more difficult for small businesses and households. Small businesses like restaurants and bars have been the main drivers of job growth since the recovery from the pandemic.
“This poses a lot of downside risks for the job market,” said Thomas Simons, an economist at Jefferies in Bloomfield, New Jersey. “In the next few months, we will see less hiring from small businesses as their access to credit becomes more restricted.”
Some economists are predicting that the payrolls will turn negative in the second half of the year, a development they say would force the Fed to cut interest rates to prevent the economy from sliding into a deep recession. Fed Chair Jerome Powell has spoken out against this assumption.
Economists forecasting a rate cut this year argue that parts of the economy, such as housing, are already in recession, while tighter bank lending standards mean lending will become tighter. They also noted that business sentiment was at recessionary levels while consumer confidence remained lackluster.
“The combination of these factors means that we have to say that a recession is a high probability event and in a recession inflationary pressures are likely to ease off fairly quickly and that will open the door for rate cuts later this year,” James said Knightley, Chief International Economist at ING in New York.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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