The Market Today

Continued Tightening in Labor Market

by Craig Dismuke, Dudley Carter


Economy Recovers Another 431k Nonfarm Payrolls: The economy recovered 431k nonfarm payrolls in March which, along with +95k in revisions to the previous two months’ reports, brought the total number of lost payrolls from the pandemic down to 1.58m.  By sector, job gains were mostly stronger than their 12-month averages with the notable exceptions of transportation (-1k vs +34k) and government (+5k vs +26k).  The recovery in leisure sector jobs continued but also continued to slow, recovering 112k payrolls (12m avg. of +174k). There are still 1.5m leisure sector jobs missing, including 820k in food and dining services. Education jobs recovered 31k but 392k (2.7%) remain lost.

Unemployment Rate and Household Report Metrics Show Increasingly Tight Labor Conditions: The unemployment rate fell from 3.82% to 3.62% as 736k more people reported as employed, 318k fewer people reported as unemployed, and 418k more people reported as being in the labor force.  This brought the participation rate up from 62.3% to 62.4% and the prime-age participation rate up from 82.2% to 82.5% (the pre-pandemic peaks were 63.4% and 83.1%, respectively).  The unemployment rate declined for all races/ethnicities and is closing in on pre-pandemic, historically low levels for all races/ethnicities.  Participation improved for both males and females, but female participation was particularly strong with prime-age female participation spiking from 75.8% to 76.5%.  The number of long-term unemployed, a measure of residual labor damage, fell another 274k to 1.4m and is now just 307k above its pre-pandemic level.

Wage Growth Remains Rapid and Broad: Average hourly earnings were boosted by a decline in the average number of hours worked, back down from 34.7 to 34.6 hours per week. This helped push earnings up 0.4% MoM which brought the year-over-year rate up from 5.2% to 5.6%.  The increase in earnings were broad across most sectors.

Fed Implications: The continued recovery of lost payrolls, the faster-than-expected decline in the unemployment rate, and the continued pressure on earnings are likely to give the Fed justification for moving at a faster pace.  This is the last jobs report Fed officials will see before their May 4 policy meeting.

Manufacturing PMIs, Construction Spending, and Auto Sales: Another batch of economic reports is scheduled for later this morning including the March manufacturing PMIs from both S&P Global and the ISM, and the February construction spending data.  Also on the calendar today are the March auto sales figures.  Sales have been decimated by a persistent dearth of inventory.


Stocks Slump to Cement First Quarterly Decline in Two Years; Treasury Curve Back Near Inversion: U.S. equities sold off sharply late in Thursday’s session, paring a monthly gain and cementing the worst quarter for the three major indices since the onset of the pandemic rocked global markets in the first quarter of 2020. The Dow, S&P 500, and Nasdaq all declined more than 1.5%, with the lion’s share of the losses accumulated in the final hour of trading. Financials led declines across all 11 S&P 500 sectors with tech and cyclicals particularly hard hit. The S&P 500 rose 3.6% in March, its first monthly gain since December, but dropped nearly 5% for the quarter, ending a seven-quarter recovery since the index plunged 20% in the first quarter of 2020. Oil prices slumped sharply to end a tumultuous month for the commodity after President Biden confirmed reports that the U.S would release 1 million barrels per day from strategic reserves for six months to try and alleviate energy-related inflation pressures. WTI closed the month at roughly $100 per barrel after trading within a range between $93.53 and $130.50. The 2-year Treasury yield ended 2.8 bps higher at 2.335%, a fitting end to a month defined by a focus on inflation and Fed policy. With the Fed signaling aggressive plans for tightening this year, the 2-year yield soared 90 bps, the biggest monthly increase since 1984. For the quarter, the 2-year yield surged a sizzling 160 bps for the quarter, the biggest quarterly move since the same year. Fed funds futures ended the month expecting the Fed’s policy rate will average 2.35% in December, assuming more than 2.00% of tightening over the remaining nine months. The 10-year yield slipped 1.1 bps Thursday to 2.338%; using the bid-side, the two yields closed inverted for the first time since September 2019. The 10-year yield rose 51 bps in March and jumped 83 bps for the quarter, both marking the biggest respective moves since the 2016 Presidential Election.

Investors kicked off a new month and quarter focused on the same old storylines as they waited for the BLS to release jobs data for March. A private survey of manufacturing businesses in China confirmed results from official government data released Thursday showing activity contracted in March amid renewed lockdowns aimed at tamping down the country’s worst virus outbreak yet. The Caixin Manufacturing PMI fell more than expected from 50.4 to 48.1, its lowest reading since February 2020. China’s CSI 300, however, rose 1.3% to lead a mixed day of trading across the continent. Treasury yields rose ahead of U.S. trading and were outpacing a broad rise in European sovereign rates following stagflationary signals in a couple of key economic reports from the bloc. The Eurozone’s Manufacturing PMI for March was revised down from 57.0 to 56.5, a 1.7-point monthly decline from February and its weakest reading since January 2021. Separately, preliminary data showed headline inflation in Europe accelerated more strongly than expected as a result of the war. Headline inflation rose from 5.9% to 7.5%, topping the 6.7% annual price increase expected. Core inflation rose from 2.7% to 3.0%, a touch softer than the anticipated 3.1% increase. Minutes before the jobs data were released, U.S. equity futures were higher by 0.5% and the Treasury curve was higher and steeper. The 2-year yield had risen 4.5 bps to 2.379% with the 10-year yield 5.9 bps higher at 2.397%. After the payroll report showed another drop in unemployment and another record for wage growth (more above), the fed funds futures curve steepened higher while the Treasury curve flattened. The 2-year yield was 8.1 bps higher on the day at 7:45 a.m. CT to 2.414%, overtaking the 10-year yield at 2.404% on a 6.6-bp daily increase. The 3-year yield was higher than the 5-year yield which was higher than the 7-year, 10-year, and 30-year yields.

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