cawacko
Well-known member
Good read on the job data. For the TLDR crowd; ordinary economy cycle is reacting as expected to interest rate hikes and slowing down while the COVID economy cycle is doing better but the tailwinds are starting to leave. Therefore plenty of data showing a slow down and thus the Fed should not raise rates again but based on the low unemployment rate its hard to argue labor market is in bad shape and thus Fed should continue tightening.
U.S. Economy’s ‘Two Cycles’ Put Fed in a Pickle
Mixed messages from the latest jobs report add to uncertainty
Labor market conditions are probably weaker than they look from the latest jobs report, and there is reason to believe they will keep deteriorating. But it remains hard to say the jobs picture is poor overall. This presents policy makers with a conundrum.
The U.S. economy added a seasonally adjusted 236,000 jobs in March, the Bureau of Labor Statistics said Friday, just slightly shy of expectations for 238,000. That pace was down somewhat from an average of 334,000 over the prior six months, the BLS said.
Diving deeper, though, there were signs that some of the more cyclical parts of the economy are flagging. The retail sector shed 14,600 jobs in March, having added 41,300 the prior month. About 9,000 jobs were lost in construction, which had gained 12,000 in February.
Meanwhile, there were strong gains in certain sectors that are continuing to recover from pandemic-induced weakness: Leisure and hospitality added 72,000 jobs in March, while healthcare and social assistance added 50,800.
This reflects what T.S. Lombard economist Steven Blitz says are two cycles operating at once in the U.S. economy—the ordinary business cycle and a Covid cycle. The ordinary business cycle is going as one might expect after massive tightening by the Federal Reserve, with sectors that are especially sensitive to interest rates, like construction, and to people’s economic expectations, like retail, starting to turn down. At the same time, in some sectors there is still room to keep making up ground lost during Covid as businesses like hotels and dentists’ offices are still staffing up.
But this tailwind will eventually fade. It already appears to be tapering off somewhat, with leisure and hospitality for instance slowing its pace of hiring–the 72,000 jobs this sector added in March compares with 90,000 in February and 99,000 in January.
The real question now is if the weakness intensifies in cyclical sectors and spreads to others. At some point, workers losing their jobs in other areas will stop booking hotel stays. Recent job losses in high-paying industries like technology and financial services aren’t fully reflected in the numbers yet, partially because white-collar employees like these often get multiple months of advance notice before officially losing their jobs.
Also note that the BLS survey is conducted midmonth. March’s banking panic essentially began on March 8, when Silicon Valley Bank announced plans to raise capital. This means there were only a handful of days for the impact of the crisis to be felt in the jobs numbers. It is a decent bet that sectors like information and finance, which added 6,000 jobs and shed 1,000 respectively in March, will start looking weaker in the months ahead.
The problem for the Federal Reserve is that with the March unemployment rate at just 3.5%, it remains hard to argue that the labor market overall is in bad shape. It also doesn’t help that the Fed will have to make another decision on rates during its next rate-setting meeting on May 3, two days before the next monthly jobs number will come out on Friday, May 5.
This helps explain why traders are still pricing into futures markets a roughly 70% chance that the Fed will proceed with a quarter-point hike on May 3, according to the Chicago Mercantile Exchange. It won’t be an easy call.
https://www.wsj.com/articles/u-s-ec...pickle-751de824?mod=Searchresults_pos1&page=1
U.S. Economy’s ‘Two Cycles’ Put Fed in a Pickle
Mixed messages from the latest jobs report add to uncertainty
Labor market conditions are probably weaker than they look from the latest jobs report, and there is reason to believe they will keep deteriorating. But it remains hard to say the jobs picture is poor overall. This presents policy makers with a conundrum.
The U.S. economy added a seasonally adjusted 236,000 jobs in March, the Bureau of Labor Statistics said Friday, just slightly shy of expectations for 238,000. That pace was down somewhat from an average of 334,000 over the prior six months, the BLS said.
Diving deeper, though, there were signs that some of the more cyclical parts of the economy are flagging. The retail sector shed 14,600 jobs in March, having added 41,300 the prior month. About 9,000 jobs were lost in construction, which had gained 12,000 in February.
Meanwhile, there were strong gains in certain sectors that are continuing to recover from pandemic-induced weakness: Leisure and hospitality added 72,000 jobs in March, while healthcare and social assistance added 50,800.
This reflects what T.S. Lombard economist Steven Blitz says are two cycles operating at once in the U.S. economy—the ordinary business cycle and a Covid cycle. The ordinary business cycle is going as one might expect after massive tightening by the Federal Reserve, with sectors that are especially sensitive to interest rates, like construction, and to people’s economic expectations, like retail, starting to turn down. At the same time, in some sectors there is still room to keep making up ground lost during Covid as businesses like hotels and dentists’ offices are still staffing up.
But this tailwind will eventually fade. It already appears to be tapering off somewhat, with leisure and hospitality for instance slowing its pace of hiring–the 72,000 jobs this sector added in March compares with 90,000 in February and 99,000 in January.
The real question now is if the weakness intensifies in cyclical sectors and spreads to others. At some point, workers losing their jobs in other areas will stop booking hotel stays. Recent job losses in high-paying industries like technology and financial services aren’t fully reflected in the numbers yet, partially because white-collar employees like these often get multiple months of advance notice before officially losing their jobs.
Also note that the BLS survey is conducted midmonth. March’s banking panic essentially began on March 8, when Silicon Valley Bank announced plans to raise capital. This means there were only a handful of days for the impact of the crisis to be felt in the jobs numbers. It is a decent bet that sectors like information and finance, which added 6,000 jobs and shed 1,000 respectively in March, will start looking weaker in the months ahead.
The problem for the Federal Reserve is that with the March unemployment rate at just 3.5%, it remains hard to argue that the labor market overall is in bad shape. It also doesn’t help that the Fed will have to make another decision on rates during its next rate-setting meeting on May 3, two days before the next monthly jobs number will come out on Friday, May 5.
This helps explain why traders are still pricing into futures markets a roughly 70% chance that the Fed will proceed with a quarter-point hike on May 3, according to the Chicago Mercantile Exchange. It won’t be an easy call.
https://www.wsj.com/articles/u-s-ec...pickle-751de824?mod=Searchresults_pos1&page=1