"The labor market continues to exert inflationary pressures in the economy"
US employers announced 236,000 jobs in March, a slowdown from the pace seen in the past two months but still at a “healthy level,” according to the Bureau of Labor Statistics.
Fannie Mae chief economist Doug Duncan said the March jobs report was roughly in line with their current forecast and indicates “a labor market that is gradually slowing but still remains healthy.”
In the household survey, the unemployment rate dropped to 3.5% in March, and the labor force participation rate increased for the fourth straight month to 62.6% – the highest since March 2020. Duncan noted that wage growth remains strong, with the average hourly earnings rising 0.3% month over month and up 4.2% year over year, the lowest annual rate since June 2021.
“While this 4.2% figure is a deceleration from the pace in recent months, it is still higher than the typical wage growth rate prior to the pandemic, illustrating that the labor market continues to exert inflationary pressures in the economy,” he said. “We continue to view inflation risks as skewed to the upside, which suggests that the Federal Reserve may keep rates higher for longer until it sees a meaningful increase in the unemployment rate.”
Mike Fratantoni, chief economist of the Mortgage Bankers Association, added: “These trends and recent data showing fewer job openings and increases in initial claims for unemployment insurance paint a picture of a job market that is still quite strong but beginning to flag, lagging other indicators of a slowing economic activity and tightening credit.
“The increase in employment is concentrated in just a few sectors, with the largest gains in leisure and hospitality, where the level of employment remains 2.2% below its pre-pandemic peak. The question becomes whether consumers will continue to spend on meals out and travel as the economy slows. If not, job gains in this sector may also begin to slow.”
“As has been the case recently, employment growth in the service-providing sectors remains strong, with 196,000 jobs gained in March,” Duncan said. “Leading sectors include leisure and hospitality (+72,000), private education and health services (+65,000), and professional and business services (+39,000). On the other hand, the goods-providing segment showed an overall decline this month, with the construction and manufacturing sectors seeing declines of 9,000 and 1,000, respectively. Additionally, retail trade employment fell by 14,600 in March. We also note that residential construction (including specialty trade contractors) fell by 7,000 in March and is down nearly 14,000 so far in 2023, likely contributing to continued supply constraints in the homebuilding sector.”
MBA projects the unemployment rate to increase to 4.8% by the end of 2023.
“Slowing wage growth should allow inflation in the services to slow over time,” Frantantoni said. “MBA expects that the Federal Reserve has reached the peak for this rate cycle, and slowing job growth supports that call, but the most important data points will be those for inflation. If inflation does not show signs of also slowing, the Fed may move ahead with one last rate hike.”
Want to make your inbox flourish with mortgage-focused news content? Get exclusive interviews, breaking news, industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
