What the Jobs Report Says About Inflation and the Economy: March’s Nonfarm Payrolls | Market Takes

hey everyone welcome I'm G do it three times anyway welcome welcome to Market takes I am Dion Ronan reporter at the Wall Street Journal I know you could have been anywhere else but you're here with me and I appreciate that today we are breaking down the March jobs report the non-farm payrolls report and man we got an interesting one markets reacted in a very interesting way uh we are going to talk about all that let's let's go through what we're going to talk about first off we're going to talk about what the report showed how that compared to expectations I think that's going to give you a big picture overview then we're going to talk about some standout numbers from the report I'm I dug into this report I've been reading through it looking at the market reaction we're going to talk about the big numbers in the report the most important numbers aside from this big headline number which is definitely worth talking about we're going to talk about what this means for the Federal Reserve we're going to look at the market reaction and of course we're going to talk about what's next for data because you all know here on Market takes we are always looking forward even though this is backward looking data so listen let's get into it let's throw a chart up here on your screen so you can see what I'm talking about when we talk about the trend right it's all about the trend so this month 303,000 jobs added strongest report in quite some time but what do you see there on the right side of your screen you see those bars getting higher right that is an accelerating trend of job growth we are seeing the number of jobs added pick up so that's unusual what usually happens when the Federal Reserve raises interest rates is businesses struggle they pull back on hiring and that slows down the economy that slows down inflation what you're seeing on your screen is not that what you are seeing is an accelerating pace of job gains so 303 jobs 303,000 jobs added in March that was a significant number and it comes on top of an increase of 22,000 for the previous two months so January was revised from 229,000 jobs to 256,000 jobs February was revised down but only by 5,000 so 270,000 jobs at it so what you see there is an acceleration from that low we hit in October which was still right around a 100,000 jobs added and each month since then we have consistently added more jobs than the month before that is an accelerating Trend and if you look back going back to 2021 right you saw those big job gains as we were recovering from the pandemic that was really just the economy kind kind of trying to get back to equilibrium and then you see the economy slowing down you see those job gains slowing down consistently the bars are lower and then as we move into 2024 you see that acceleration again those bars are going higher and really this chart just illustrates how we have seen over the last few months the number of job gains accelerate which is very much not what the Federal Reserve wants to see that's not how you get inflation down that's not how you get consumer spending down that's not how you get you know all these things that push ex push inflation higher to come down is with this accelerating number of jobs added and so what we're seeing right now is very different from what you usually get in a cycle like this where the Federal Reserve at this point has raised rates to the highest level in about 23 years usually you see job gains slowing down you only need about a 100,000 jobs added to keep Pace with births and folks graduating from high school and college and all those sorts of things we're seeing about three times that so this is a still hot labor market and a labor market that looks to be getting hotter not cooler not cooling off not slowing down that's a big deal the trend that we're seeing right now basically you saw it on that chart is up and to the right I want to put up here on your screen right now a quote from my man Torsten slock he is the chief Economist at Apollo Global Management he talked to me on the podcast wsj's take on the week this is from March 17th so the conversation went out to y'all March 17th that's a Sunday T and I had this conversation back about March 12th and I think my man right here was ahead of the game the market just seemed to realize this yesterday but torson saying he doesn't think the fed's going to cut rates at all this year because of what we're seeing in this Tailwind from the stock market from the increase in asset prices home prices and what we got today was a boost from the job market the labor market being stronger than expected we were only supposed to add about 200,000 jobs right at 200,000 was the expectation for Economist we surpass that by a 100,000 and Torsten says he thinks that's going to keep the FED busy battling inflation the better part of the next six to nine months aka the rest of this year now toron if you don't know he's one of the smartest guys on Wall Street he's been doing it for a long time before it was at Apollo he was at Deutsche Bank his quote right here really just illustrating that torson was a head of the game and we tried to tell y'all on take on the week I've been telling y'all if you watch Market takes if you haven't been watching Market takes you're losing but you're here now so you know we can forget about all that but right now the labor market is picking up the stock market the housing market all of these things strong bullish sentiment from investors is putting a lot of pressure on inflation and Torsten expressed three weeks ago and this is a a sentiment that I've had myself I've been telling you if you watch the last Market take that fed meeting I said what the FED is doing is it doesn't really seem like they are talking about cutting rates in the way that the market and the way that investors are expecting and how much of this bullishness in markets really comes back to and is tied to what the FED does is going to be a big question because you know the FED is everything if you watch Market takes you know that's the biggest thing and really the most important thing in all of markets uh we put out a story just this morning on wsj investors are the most bullish they've been since since the 2021 mem stock craze so investors are incredibly bullish that's according to the American Association of individual investors so retail Traders now we know that retail Traders have grown to be a more important and much larger segment of the market over the past few years and we are seeing that they are the most bullish they've been since 2021 that is significant that is Meaningful so let's dive into the numbers on this jobs report today wages up. 3% for the month 4.1% year-over year that's right in line with expectations that's not I've seen some quotes from investors from Wall Street folks saying that wage growth is cooling wage growth has been about 4 to 4 and a half% for about a year now we have not seen wage growth really move out of this level it hasn't fallen below and I I don't think it's Fallen below this 4.1% for quite some time but it certainly hasn't fallen below 4% hasn't gone above 4.3 4.4% in quite some time so this is really just right in line with expectation labor market labor force participation 62 .7% all that means is you've got about 62.7% that's historically actually fairly low uh given where we've been and we're not seeing an acceleration we're not seeing those folks as they say come in from the sidelines people who haven't been looking for a job saying they are looking for a job people who haven't been employed who have been you know living in the basement with Mom and Dad or who you know for whatever reason haven't been able to go out there and get and find and look for a job they're not really coming into the labor force the way you would expect from from a strong labor market like the one that we certainly had in 2023 and the one that it looks like we're having right now so we're not seeing a lot of the typical things that you see in an environment like the one we're in revisions also that was a big thing if you remember we did a video just about a month or so ago about the jobs market and last year in 2023 I think it was nine of the 12 months in that year were revised lower it might have even been 10 I think it was 10 out of 12 months you had lower Visions consistently and you actually had the longest consecutive of negative revisions that's ever been seen in the history of the survey so this higher revision for January really just kind of locks in yeah it does seem like the labor market is getting hot and getting hotter and going to get hotter average aage average hours work Rose to 34.4 per week so generally things got better but not a lot better no real outperformers no huge moves up or down in any of these numbers but what we are seeing consistently is a trend higher and so I'd say for this report the biggest number really was the headline number that 303,000 jobs added coming in more than 100,000 jobs more than what economists had expected um within that 303k you had that's well above the 231,000 gain over the prior 12 months and you had the big gains coming in healthcare government and construction those Industries are important I'll tell you why government employment had been falling off of a cliff for quite some time we had seen really low levels of employment in the government those government jobs that are hard to get now historically government jobs come in a lot stronger at the beginning of the year because the government it takes them a long time to hire and usually they're on a pretty set schedule so when the government's going to hire people whether that's School teachers whether that's you know administrators folks who work in those government buildings things like that they're going to do their hiring at the beginning of the year and what they're typically going to do is there it's it's a long process it's a drawn out process it's not something where they're going to hire a lot of people all the time where there's a lot of movement usually when people get government jobs they stay in those government jobs and that's someone who's going to be there for quite some time so we got 71,000 that's much higher than the average monthly gain over the past 12 months of 54,000 in the government the private sector did add 232,000 jobs that was very strong as well the other piece of that construction adding 39,000 jobs that's about double the average monthly gain seen in the past 12 months that's a good sign for the housing Market which also has been RedHot on the price side but also in terms of folks buying homes again if you remember what my man Torsten slock said he said the rise in stock prices the rise in home prices those things are going to get folks you know more bullish about the economy when people see the value of their home rise well they think oh man I got so much money let me go out and let me buy this new couch let me go out and spend more money let me you know maybe I want to take on a home equity loan home equity line of credit so I can add a patio a deck things like that so you know it's what they call the wealth effect you don't actually have more money in your bank account but your 401K is looking good the price in your house is looking good and those things motivate people to spend more and when folks spend more companies raise prices inflation goes up we've seen this movie before so keep an eye on those things really quickly let's talk about what this means for the FED because as I've said that's the whole ball game everything is about the FED Market sold off yesterday on Thursday because people finally kind of came to the real ization of what Jerome pow has been saying over and over and over again at his press conferences at media appearances and his speeches he's saying listen right now I know y'all think we're going to cut interest rates and we might do that but we might not we might just not it might be appropriate to leave rates right where they are at 5.25 to 5 a half% at this restrictive level yeah small businesses are are are hurting right now we're seeing that uh we're seeing the nfib small business confidence survey at historic lows we know that it's tough It's a tough environment out there but we're not seeing the consumer slow down we're not seeing really any confidence that inflation data is going to fall to a level that's consistent and appropriate with what we want which is 2% not three we want two and that's what he's been saying and then we heard from Atlanta fed president rapael Bostic and a few others that maybe we only need one rate cut this year maybe we only need two rate Cuts this year the market Market coming into this year priced in six cuts when the FED lowers rates by six Cuts as in you know that's going to be about 150 basis points that's meaningful that's a lot lower rates that really kind of takes the pressure off those small businesses and consumers and folks who were thinking about you know refinancing who are thinking about maybe taking out a home equity line of credit for businesses that need to roll over their debt borrow more money that takes a lot of pressure off and makes those things a lot cheaper it's also great for the stock market well if the fed's only going to cut one time or maybe not at all that changes the calculus for a lot of things in the economy and that's what we're seeing but again this all comes back to inflation so let's actually throw another chart up here on your screen so you can see what's happening with inflation this is CPI the Consumer Price Index and what we saw from mid 2022 June 2022 when inflation got to 9% on CPI to uh about Midway through last year 2023 was just inflation coming down every month inflation lower than the month before and then we saw a bit of an acceleration and now we're seeing inflation kind of stall out that's what you see inflation right there right around 3% on the headline number that just illustrating that what we're not seeing is consistent lower inflation the FED says we want to see inflation coming in consistently lower we want to see lower inflation not the same not you know carrying on at this level around 3% because we want three we want two we need to see that happening and that's not happening a big part of that has been gas pricing let's throw another chart up here on your screen so you can see what I'm talking about in terms of the movement of gas prices now these are gasoline Futures The rbob Continuous contract but they align pretty well with what gas prices are at the pump and what you see right there is just the trend don't Focus too much on the price because this is about what Traders are doing on the commodity markets but what you see there is a very clear Trend gas pric is going up starting about 210 on this contract going up to about 280 over the course of the four months in this year and that just illustrates again gasoline prices and oil prices overall that's heating oil natural gas all those things had been bringing inflation down they had been weighing down overall inflation if gas prices continue to rise if you continue to see higher gas prices well that could push inflation back up and in and gas and oil could start to actually be a push higher instead of a pull lower on inflation and you could start to see us move away from 3% maybe back to 3 and A2 back to four and then maybe the FED has to think about raising rates again and that completely flips The Narrative on its head that's something to keep in mind and look out for let's talk about what's going on in the market today because I think this really gets to a theme that we are seeing and that's bullishness which is what Torsten SLU talked about you see there the Dow the S&P the Nasdaq all Rising higher all really kind of shaking off this unemployment report or excuse me all shaking off this jobs report when you look at the stock market look at that the Dow the NASDAQ the S&P and again this is a bit of bounceback from yesterday but you do see very clearly that bullishness now let's take a look at bonds if you know Market takes you know I'm always telling you watch the bond market that's the real market and what we see is a big move higher as soon as that job report comes out so this is the 10e note the most traded jobs report was out here boom you just see it jump off and now we're coming back from that investors saying oh maybe I want to actually buy bonds because maybe things are are moving in a different direction than what I expected here's the 2-year note right here what you see and it's kind of it's doing the same thing that's most tied to Fed expectations as you're looking at Commodities let's let's take on that a little bit you see those crude features kind of holding p holding their level but let's look at the year-to-date move boom right there just what you were seeing overall and when we look at the currency Market we're seeing the dollar as the Euro moving lower that means the dollar is moving higher wsj dollar Index but that's moving kind of right along with those bond yields so that just illustrating that investors are pretty bullish we're seeing bond yields rise we're seeing stock prices move higher the bond yields I think are in line with this idea that the FED is going to raise rates or not raise rates excuse me the FED might not be cutting rates later this year there could be fewer cuts the stock market seems to be kind of shrugging that off hey let's buy stocks btfd buy the dip um and and get paid on stocks so here's what to watch for up next we've got the nfib small business optimism survey that's out on Monday keep your eyes on that because small businesses have been hurting in this environment and they could be in this environment for longer now that we see this data so nfib small business optimism survey on Monday CPI is out on Wednesday we will be right here on Market takes breaking that down for you telling you everything that was in the data what the most important things were to watch there and you know kind of just explaining what happens making it make sense a little bit there now the other the other piece you get is PPI producer price index as then what we're businesses paying that report is going to be out on Thursday the following day make sure to check us check that out keep your eyes on that and for more check out my podcast wsj's take on the week we cut through the noise to explain the major business and financial news that moves markets also you can make smarter investing decisions subscribe wherever you get your podcast and that's going to do it for us here on Market takes I'm Deion Ron and reporter at the Wall Street Journal hope you come back and do it with us next time

Channel: Dion Rabouin | WSJ

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Keywords: u.s. economy, markets, market takes, wsj, dion rabouin, gdp, gdp report, marekt reaction, fed, fed news, the federal reserve, economic news, q4 earnings, q4, headline pce, inflation news, stocks, bonds, currency, commodity trading, commodity trading strategies, crypto, cryptocurrency, cpi data, inflation, take on the week podcast, investing, investors, dion rabouin market takes, wsj live, mkts, jobs, cpi, composite price index, housing, existing home sales, homes, housing market, real estate

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Length: 17min 33sec (1053 seconds)

Published: Fri Apr 05 2024