Commentary Directory

Jobs Growth Gained Momentum in Q1 2024 Despite Higher Rates

Jacob Hess
April 05, 2024

The US labor market remains a powerful force, relentlessly cranking out jobs. In March, nonfarm payroll employment increased 303,000, the strongest job gain in almost a year (303,000 back in May 2023) and above consensus expectations of 214,000. In addition to that, there were no major changes to January and February numbers. In total, revisions added just 22,000. The robust job growth caused the unemployment rate to dip slightly to 3.8% after the increase to 3.9% in February. Momentum in hiring has accelerated each month so far in 2024 according to the three month moving average, accentuating how hot the current labor market still is. After a year of strong job growth the three month average is only marginally lower, 305,000 in March 2023 to 276,000 in March 2024 (up from 243,000 in January 2023).

The establishment data shows that job growth was exceptionally strong across the service and public sectors while the goods sector saw moderate growth itself. As a whole, the service sector added a majority of the 303,000 jobs with an increase of 190,000. The strongest industries within that sector were education & health services (+88,000), other services (+71,000), and leisure & hospitality (+49,000). Utilities was the only service industry to note a loss in employment, with a decline of only -400. Also showing strength was the public sector which saw hiring of 71,000 in March. Government job growth continues to be fueled by strong fiscal growth that has filled in for gap left by monetary policy as the Fed maintains restrictive rates.

The household data echoed the establishment data's strength with a reported 498,000 increase in employment and a -29,000 decline in unemployment. This meant that all of the 469,000 individuals who joined the work force in March successfully found a job which is a notable sign of strong labor demand. Both the labor force participation rate and the employment-participation ratio grew 0.2 ppts to 62.7% and 60.3%, respectively, which is a good sign for the supply of labor. In another show of strength, we see that unemployment was mostly voluntary for those exiting a job. Specifically, the number of unemployed who were job losers (or who completed temporary jobs) fell -174,000 to 3.0 million while the number of unemployed who were job leavers grew 112,000 to 823,000.

Finally, we have the wage data. Average hourly earnings grew 4.1% YoY in March, down from 4.3% YoY in February. This was in-line with the expectation that wage growth would continue its gradual deceleration and contradicted the surge in the ADP's Job Switcher Annual Pay growth rate from 7.6% YoY in February to 10.0% YoY in March seen earlier this week. Goods wage growth accelerated slightly with a strong MoM rate of 0.6% MoM, but services wage growth was weaker, and the annual rate of growth fell below four percent to 3.9% YoY.

The market is taking the 3XX,XXX headline jobs number and running with it. Rates jumped right after the report was released including a 7 bps move in the 10-year Treasury yield to 4.39%, the highest since November 2023. Additionally, Fed Funds futures saw a hawkish adjustment as the probability of a June rate cut moved closer to a coin flip at 55.5% which is down from 65.8% yesterday. July cut probabilities also shrank. In response to the short-term adjustment in rate expectations, S&P futures pared the light gains of the morning.

Are these hawkish moves justified? Probably, but they should not be carried on for too long. It is easy to focus on the robust headline jobs growth but that does not accurately describe the situation in March. The 0.2 ppt increase in the participation rate is very good news for labor supply after a short-term move lower from 62.8% in November to 62.5% to start 2024 threatened to prolong the threats of labor shortages. On top of that, wage growth did continue its deceleration. The combination of strong job growth and easing wage growth is a dream scenario for the Fed as it satisfies the dual mandate and gives the Fed room to cut if it needs to as price pressures would be less of a concern. The bottom line is, the US economy is still very strong and unemployment is unlikely to be a problem in 2024.