March Jobs Report Solid Enough to Cement a 50bps Rate Hike in May

  • Total nonfarm payrolls rose by 431k vs. 490k expected, but February was revised higher from 678k to 750k with a total of 95k additional jobs added to the prior two months. Job gains were, once again, widespread led by gains in leisure and hospitality, professional and business services, retail trade, and manufacturing.

 

  • Job growth averaged 562k per month in the first quarter, the same as the average monthly gain for all of 2021. Total employment, however, remains 1.6 million below its pre-pandemic level in February 2020 but is slowly closing that gap.

 

  • The unemployment rate dropped two-tenths to 3.6% from 3.8% and compares favorably to the 3.7% expectation. We’re now just one-tenth away from the pre-pandemic low of 3.5%.

 

  • The number of unemployed people edged down 300k to 6.0 million. In February 2020, prior to the pandemic, the unemployment rate was 3.5% and the number of unemployed totaled 5.7 million. So, the labor market is just about back in most respects to pre-pandemic levels.

 

  • The labor force participation rate rose a tenth to 62.4% and the employment to population ratio rose two-tenths for a second straight month to 60.1%. In February 2020, both measures were 63.4% and 61.2%, respectively. Once again, closing in on pre-pandemic levels but not quite there yet.

 

  • As we suspected after last month’s lower-than-expected wage gains, it turns out to have been a one-off event as wage gains rebounded in March. Average Hourly Earnings rose 0.4%, matching expectations, while February was revised up a tenth from unchanged to up 0.1%.  The YoY rate for earnings was 5.6% vs. 5.5% expected and 5.2% in February. That 5.6% increase is the biggest annual increase in the data series dating back to 2007. There was one bigger increase in May 2020, but that was skewed by the pandemic initially eliminating many low-wage jobs.

 

  • In all, this is a solid jobs report, especially the wage gains, which probably cements a 50bps rate hike on May 4. Many of the labor market metrics are at, or near, their pre-pandemic levels which will give the Fed confidence to go forward with 50bps rate hikes given this strength in the labor market.

 

  • Treasury yields took the report and promptly inverted the 2yr-10yr curve by a couple basis points as a possibly more aggressive rate-hiking pace gets priced into the market.


 

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 2.47 2.71 2.76 2.87 2.98 3.44
0.50 2.46 2.68 2.70 2.76 2.84 3.33
1.00 2.45 2.65 2.67 2.71 2.75 3.20
2.00 2.64 2.61 2.63 2.64 NA
3.00 2.58 2.57 NA
4.00 2.53 NA
5.00 2.49 NA
10.00 NA

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Tags: Published: 04/01/22 by Thomas R. Fitzgerald