Hiring Begins to Slow

Stocks gapped down at the open this morning but quickly reversed course. At the moment, the Dow is up 48 points and the S&P 500 is down only .15%. The VIX fear gauge remains below 20 suggesting no real panic. Maybe that’s because, despite a recent wave of recession fear, safe-haven investments like gold and Treasury bonds are actually selling off today.

Last week the Bureau of Labor Statistics released data on unemployment insurance claims that shocked investors, and CNBC reporters are calling this a “game changer.” The issue is that BLS just revised previously published data. So whereas we thought unemployment claims were running flat this year, we now know they have been trending higher. This makes sense given the gradual rise in layoff announcements, and it will cause investors (and the Fed) to recalibrate estimates of labor market strength. But at the same time, unemployment claims aren’t skyrocketing.

In addition, Friday’s Employment Situation Report suggests hiring has slowed somewhat, but the job market remains pretty resilient. The economy generated 236,000 new jobs in March, which is the lowest monthly tally for over two years. Stripping out government hiring, private payrolls fell short of forecasts. But the unemployment rate actually sank back to 3.5% because more people re-entered the workforce. As evidence, the labor force participation rate climbed to 62.6%, a three-year high. This is exactly what we need given the shortage of workers across many industries. Not surprisingly, greater labor supply is helping to reduce wage gains. Average hourly earnings slowed to an annual rate of 4.2% from 4.6% in the prior month. That’s the slowest rate of income growth since June 2021.

But while inflation is falling and the job market is coming into better balance, are Federal Reserve officials satisfied that we’re on track? Probably not. Anna Wong and Stuart Paul of Bloomberg Economics say that the “slow pace of deceleration flags the risk that the unemployment rate will undershoot” the Fed’s year-end target of 4.5%, “in which case, the Fed will have to hike a couple more times after May.” In other words, the Fed may keep raising interest rates despite clear signs of slowing because they sense the economy can handle it. So far, the data seem to bear this out.