The March jobs report brought yet more evidence of a very strong labor market. Payroll gains exceeded 300,000, beating almost all Wall Street forecasts. Yet, average hourly gains moderated slightly, in line with expectations. While this jobs report lowers the odds of a June Federal Reserve (Fed) policy rate cut, as Chair Jerome Powell has noted that a strong labor market is not a hurdle to rate cuts, it is still the CPI print next Wednesday that likely holds the key to the Fed’s policy path.

Non-farm payrolls
Thousands, January 2022–present

Monthly non-farm payrolls and 3-month moving average since January 2022
Source: Clearnomics, Bureau of Labor Statistics, Bloomberg, Principal Asset Management. Data as of April 5, 2024.

Report details:

  • Total non-farm payrolls (measured by the establishment survey) increased by 303,000 in March, the strongest number since May last year and meaningfully higher than the consensus forecast for a 214,000 gain. Even the household survey, which has reported job losses in recent months, reported a strong increase in March, adding weight to the picture of labor market strength.
  • Hiring was generally led by the health care, leisure and hospitality, and construction sectors. Employment in the leisure and hospitality sector is now finally back to its pre-pandemic level.
  • Strong employment gains were accompanied by a rise in labor force participation, resulting in only a slight nudge lower in the unemployment rate, from 3.9% to 3.8%.
  • While employment growth was strong, potentially raising the risk that the labor market is reaccelerating, the Fed will be somewhat reassured by the wage data. Annual average hourly earnings growth was in line with expectations, slowing from 4.3% to 4.1% in March.

Policy outlook

In the weeks since the March FOMC meeting, markets have been questioning whether or not the Fed will actually deliver the three cuts that the latest dot plot is projecting. Today’s jobs market report has prompted the market to shift its expectations for the first rate cut from June to July. More pertinently, for the first time this year, the market is projecting fewer rate cuts than the Fed’s own projections.

Yet, with Powell noting that he is comfortable with a strong labor market provided price pressures are moderating as expected, the pivotal data point is next week’s CPI print. A hotter than expected number will make it difficult for the Fed to justify a near-term rate cut, while a cool/in line with expectations print will likely signal a green light for June cut. All eyes on next Wednesday 8:30am ET.


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