A person works on a Bowlus recreational vehicle at the Bowlus factory in Oxnard, California, February 23, 2024.
Timothy Able | Reuters
The March nonfarm payrolls number likely indicates hiring continues at a solid pace, although some of the labor market's weak fundamentals could come into greater focus when the Labor Department releases its key report on Friday morning.
Job growth is expected to reach 200,000 during this period, according to Dow Jones forecasts. If true, that would represent a slowdown from the initially reported figure of 275,000 in February but still a historically strong pace.
However, a funny thing has happened with jobs reports lately: The initially strong numbers have tended to decline in later estimates, raising questions about whether the jobs situation is as positive as it seems.
This will be just one of several key areas of focus when the report is released at 8:30 a.m. ET.
Powerful, but how powerful is it?
The February release raised eyebrows with gains that beat Wall Street expectations for 198,000 new jobs. However, it also noted revisions to the previous two months that reduced the December number by 43,000 to 290,000 and the January number by 124,000 to 229,000.
For all of 2023, the revisions lowered the initial estimates by 520,000 – there are three readings in total – against the historical trend in which the final numbers are generally higher than the first readings.
The trend “makes me question the credibility of the first number,” said Dan North, chief economist at Allianz Trade Americas. “So I would look at the previous month's reviews to see if they would be ignored, and they probably would. That's why, if you get a big number, take it with a grain of salt.”
There is some anticipation on Wall Street for a bullish surprise: Goldman Sachs raised its initial forecast to 240,000, an increase of 25,000, after strong private payrolls data from ADP that showed a gain of 184,000 month-over-month, and other indicators.
Growth drivers
Beyond numbers, composition is important, i.e. where growth is coming from and whether there are any cracks in the employment armor. The labor market's flexibility has confounded many economists who spent the past two years looking for a jobs-led recession that never happened.
“Businesses are seeing strong demand. Their productivity has increased dramatically, so they are hiring for different types of jobs,” said Luke Tilley, chief economist at Wilmington Trust. “This has enabled them to deal with the high-rate environment.”
However, there are still areas of concern.
Domestic employment, which counts individual workers rather than total jobs and is used to calculate the unemployment rate, has fallen by about 1 million people since November. The survey is more volatile and uses a much smaller sample of the number of establishments producing total headline salary growth. But there is no clear reason for this weakness, although some economists speculate that it may be due to the increase in illegal immigration over the past few years.
Full-time employment has also declined slightly over the past year, while the number of part-time workers has swelled by more than 900,000. There has also been a sharp decline in the number of temporary workers, a classic sign of a slowdown.
Inflation signals
Federal Reserve officials will be monitoring all of these factors for signs of inflationary pressures. Stocks have been under pressure this week as investors worry about the direction of monetary policy.
Average hourly earnings are expected to rise 0.3% in March, representing a jump from 0.1% in February, although estimates for the annual increase are 4.1%, or 0.2 percentage points lower.
If the consensus calls hold true, it is unlikely to move the needle much for the Federal Reserve, which is expected to begin gradually lowering interest rates starting in June, according to futures market pricing tracked by CME Group.
“Unless there is a significantly positive or disastrous employment report, they will stay on track,” North said. “They've been really clear lately in pulling back from the market, saying we're in no rush, inflation hasn't dropped to 2%.”
North said he expects the Fed will wait until July before it starts cutting interest rates — contrary to current market expectations.
