The general view that the U.S. economy is doing well hasn’t changed much over the past year, as economic data has consistently outperformed Wall Street expectations.
Friday’s March employment report was much the same.
Economic growth for the month added 303,000 jobs, nearly 100,000 more than consensus expectations. The unemployment rate fell to 3.8%, remaining near historic lows, while the share of Americans participating in the labor force increased.
“This data leaves us almost speechless,” Jefferies U.S. economist Tom Simmons wrote in a note to clients on Friday. “While we were optimistic about the payroll numbers to be released today given the recent trends in unemployment claims and the momentum from last month, we did not expect such strong data on the fringes and details. It wasn’t.”
This is the latest in a series of recent positive economic news. Data earlier this week showed that manufacturing has entered expansion territory. Meanwhile, employment rates remain at a steady pace similar to pre-pandemic levels, layoffs remain low, and labor market activity shows no signs of slowing. This comes as labor productivity has increased for the first time in 15 years.
All of this incremental content is giving forecasters a boost to their outlook for U.S. economic growth in 2024. The current consensus is for real economic growth to be 2% sequentially in the first three months of this year, an upward revision from the 1.8% forecast for 2024. march.
supply and demand
The main factor behind the strong economy is the growing U.S. population and associated workforce. The labor force participation rate rose to 62.7% in March from 62.5% in February, according to data released Friday. This rate is slightly lower than the 62.8% just before the pandemic. This came after wage growth, a potential indicator of future inflationary pressures, fell to 4.1%, the lowest level since June 2021.
This exemplifies an ideal scenario for the labor market, where employment growth continues, but not at the expense of higher inflation.
Rick Rieder, BlackRock’s chief investment officer for global fixed income, argues that “positive” supply shocks from increased immigration are helping to create the current “pro-growth” but disinflationary labor market dynamics. Ta.
Goldman Sachs’ economics team also recently cited increased immigration when raising its GDP forecast for this year. On Friday, the team’s chief U.S. economist, David Mericle, wrote that this is unlikely to come at the expense of higher inflation.
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“We expect the economy’s supply-side potential to continue to grow at a slightly faster pace than usual this year as increased immigration boosts labor force growth,” Mericle wrote. “This means that strong demand growth should not worsen the economy’s supply-demand balance much, if at all, because supply has largely caught up.”
Fed Chair Jerome Powell recently acknowledged that this could be a possible outcome for the economy this year, and that further labor market expansion itself is not necessarily a concern for the Fed’s fight against inflation.
“What we have is a lot of supply and a lot of demand,” Powell said at a press conference on March 20. “Because workers are getting paid and spending, that supply is not actually meeting the demand. “There is,” he said.
He added: “The situation in the broader economy, where inflationary pressures are not building, will potentially be similar to last year.”
Still, strong economic growth has made investors cautious about expecting the Federal Reserve to cut interest rates anytime soon. Investors now see a 54% chance that the Fed will cut interest rates in June, down from about 72% a month ago.
But the decline in expectations for Fed rate cuts has done little to sway stock prices, as the three major indexes rose on Friday.
March’s jobs report is the latest example of an upturn in the U.S. economy that surprised Wall Street analysts. (Yuki Iwamura/AFP, via Getty Images) (Yuki Iwamura, via Getty Images)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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