March's 'Blowout' Jobs Numbers Underscore 'American Exceptionalism': 5 Economists Analyze 2024 Rate Cut Implications

In March, the U.S. labor market surged beyond predictions, with 303,000 nonfarm payrolls added, surpassing expectations of 212,000. This marked the highest figure since May 2023 and accompanied a slight decrease in the unemployment rate from 3.9% to 3.8%.

We covered it first here: US Labor Market Heats Up In March: Payrolls Grow By 303,000, Highest In 10 Months, Dampen June Rate Cut Hopes

The robust report dashed hopes for Federal Reserve rate cuts, exacerbated by hawkish comments from Fed speakers, further dampening investor expectations.

The unexpected decrease in the unemployment rate from two-year highs and the anticipated rise in earnings signaled a tight labor market also reinforces the Federal Reserve’s stance against immediate interest rate cuts.

Economists Insights: March Jobs Report Dashed Hopes Of Rate Cut

The March jobs report has elicited diverse responses from economists and market analysts. Let’s delve into their viewpoints, capturing their original statements or key phrases to provide a comprehensive insight into the implications.

Joseph Brusuelas, Chief Economist at RSM US LLP, recognized as the best rate forecaster of 2023 by Bloomberg, shed light on the policy implications of the report. With wage growth slowing accompanying topline employment increases, Brusuelas sees the Fed relaxing a restrictive policy rate, given the PCE deflator continues to improve.

In his review note, Brusuelas emphasized the significance of acknowledging the increase in labor supply and rising productivity when formulating policies to avert unnecessary economic slowdowns and unemployment spikes.

The March jobs report underscores “American Exceptionalism”, showcasing the nation’s superior economic performance compared to its counterparts, with sustained job gains averaging 276,000 over the past three months.

This trend aligns with a favorable economic condition known as the “3-2 condition,” characterized by low unemployment rates and stable inflation, fostering conditions for robust growth and price stability.

According to Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, March’s “blowout jobs numbers” indicate sustained economic strength, suggesting that consumer spending is likely to remain stable in the short term.

However, “this good news is bad news for the bond market” he said. It reduces the likelihood of earlier and more frequent rate cuts by the Federal Reserve, potentially delaying the first cut until July.

Nonetheless, this situation may bode well for the stock market, given that investor focus on consumer spending and corporate profits could drive stock prices higher.

Rob Swanke, senior equity strategist for Commonwealth Financial Network sees rate cut expectations in June remaining at around 60%. “Participation rose, and average hours worked rose which could help boost real income and spending in the economy without driving up inflation,” he said. Overall, Swanke sees the report increasing confidence in the economy.

Jeffrey Roach, chief economist at LPL Financial, attributed the strong job growth in the construction sector to “the demand for new homes amid low inventory.” According to Roach, although the likelihood of a Federal Reserve rate cut in June exceeds 50%, traders should consider the prospect of the European Central Bank cutting rates before the Fed. Roach advises investors to closely monitor fluctuations in the dollar during this period of uncertainty.

Quincy Krosby, chief global strategist for LPL Financial sees the numbers complicating the Fed’s goals. While headline numbers present challenges, average hourly wages provide some clarity, per Krosby.

Despite the unemployment rate decreasing to 3.8%, the slight decline in hourly wages, crucial for assessing inflationary trends, has led to positive equity futures but upward movements in the 2-year Treasury yields and 10-year Treasury yields. Krosby noted the report bolsters the Fed’s position, highlighting that data showing a decline in inflation must accelerate to be impactful.

Market Reaction: Stocks And Dollar Gained, Bonds Fell

Treasury yields soared, with the 10-year yield surging above 4.35% and bonds fell. The iShares 20+ Year Treasury Bond ETF TLT was down 0.95% while the iShares 7-10 Year Treasury Bond ETF IEF was down 0.44% by 10:50 AM ET on Friday.

U.S. equity, as represented by the SPDR S&P 500 ETF Trust SPY was up 0.85% while the tech-focused Invesco QQQ Trust QQQ had gained 1.14% by 10:50 AM ET.

The U.S. dollar gained, with the Invesco DB US Dollar Index Bullish Fund ETF UUP up 0.18%.

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