JD.com
and other Chinese stocks fell Tuesday despite the country’s economy rebounding at a faster-than-expected pace in the first quarter.
China’s gross domestic product (GDP) rose 4.5% in the first three months of the year, convincingly beating the FactSet economists’ consensus for 3.4% growth.
Here’s a thought for investors: If the Federal Reserve raises interest rates to 5% or more would that wreck the economy and stock prices ?
The U.S. stock market has been rallying to start 2023, clawing back a big chunk of the painful losses from a year ago. The bullish tone has been linked to a view that the Federal Reserve will need to cut interest rates this year to prevent a recession, reversing one of its quickest rate-increasing campaigns in history.
Doomsday investors, including hedge-fund billionaire Paul Singer, have been warning against that outcome. Singer thinks a credit crunch and deep recession may be necessary to purge dangerous levels of froth in markets after an era of near-zero interest rates.
Another scenario might be that little changes: Credit markets could tolerate interest rates that prevailed before 2008. The Fed’s policy rate could increase a bit from its current 4.75%-5% range, and stay there for a while.
“A 5% interest rate is not going to break the market,” said Ben Snider, managing director, and U.S. portfolio strategist at Goldman Sachs Asset Management, in a phone interview with MarketWatch.
Snider pointed to many highly rated companies which, like the majority of U.S. homeowners, refinanced old debt during the pandemic, cutting their borrowing costs to near record lows. “They are continuing to enjoy the low rate environment,” he said.
“Our view is, yes, the Fed can hold rates here,” Snider said. “The economy can continue to grow.”
The Fed and other global central banks have been dramatically increasing interest rates in the aftermath of the pandemic to fight inflation caused by supply chain disruptions, worker shortages and government spending policies.
Fed Governor Christopher Waller on Friday warned that interest rates might need to increase even more than markets currently anticipate to restrain the rise in the cost of living, reflected recently in the March consumer-price index at a 5% yearly rate, down to the central bank’s 2% annual target.
The sudden rise in interest rates led to bruising losses in stock and bond portfolios in 2022. Higher rates also played a role in last month’s collapse of Silicon Valley Bank after it sold “safe,” but rate-sensitive securities at a steep loss. That sparked concerns about risks in the U.S. banking system and fears of a potential credit crunch.
“Rates are certainly higher than they were a year ago, and higher than the last decade,” said David Del Vecchio, co-head of PGIM Fixed Income’s U.S. investment grade corporate bond team. “But if you look over longer periods of time, they are not that high.”
When investors buy corporate bonds they tend to focus on what could go wrong to prevent a full return of their investment, plus interest. To that end, Del Vecchio’s team sees corporate borrowing costs staying higher for longer, inflation remaining above target, but also hopeful signs that many highly rated companies would be starting off from a strong position if a recession still unfolds in the near future.
“Profit margins have been coming down (see chart), but they are coming off peak levels,” Del Vecchio said. “So they are still very, very strong and trending lower. Probably that continues to trend lower this quarter.”
Refinitiv, I/B/E/S
It isn’t hard to come up with reasons why stocks could still tank in 2023, painful layoffs might emerge, or trouble with a wall of maturing commercial real estate debt could throw the economy into a tailspin.
Snider’s team at Goldman Sachs Asset Management expects the S&P 500 index
SPX,
to end the year around 4,000, or roughly flat to it’s closing level on Friday of 4,137. “I wouldn’t call it bullish,” he said. “But it isn’t nearly as bad as many investors expect.”
“Some highly levered companies that have debt maturities in the near future will struggle and may even struggle to keep the lights on,” said Austin Graff, chief investment officer at Opal Capital.
Still, the economy isn’t likely to “enter a recession with a bang,” he said. “It will likely be a slow slide into a recession as companies tighten their belts and reduce spending, which will have a ripple effect across the economy.”
However, Graff also sees the benefit of higher rates at big banks that have better managed interest rate risks in their securities holdings. “Banks can be very profitable in the current rate environment,” he said, pointing to large banks that typically offer 0.25%-1% on customer deposits, but now can lend out money at rates around 4%-5% and higher.
“The spread the banks are earning in the current interest rate market is staggering,” he said, highlighting JP Morgan Chase & Co.
JPM,
providing guidance that included an estimated $81 billion net interest income for this year, up about $7 billion from last year.
Del Vecchio at PGIM said his team is still anticipating a relatively short and shallow recession, if one unfolds at all. “You can have a situation where it’s not a synchronized recession,” he said, adding that a downturn can “roll through” different parts of the economy instead of everywhere at once.
The U.S. housing market saw a sharp slowdown in the past year as mortgage rates jumped, but lately has been flashing positive signs while “travel, lodging and leisure all are still doing well,” he said.
U.S. stocks closed lower Friday, but booked a string of weekly gains. The S&P 500 index gained 0.8% over the past five days, the Dow Jones Industrial Average
DJIA,
advanced 1.2% and the Nasdaq Composite Index
COMP,
closed up 0.3% for the week, according to FactSet.
Investors will hear from more Fed speakers next week ahead of the central bank’s next policy meeting in early May. U.S. economic data releases will include housing-related data on Monday, Tuesday and Thursday, while the Fed’s Beige Book is due Wednesday.
The U.S. economy could slip into recession given the fast pace of interest rate rates over the past year, said Chicago Fed President Austan Goolsbee on Friday.
“There is no way you can look at current conditions around the U.S. and not think that some mild recession is on the table as a possibility,” Goolsbee said, in an interview on CNBC.
At the same time, while inflation is coming down, there is “clear stickiness” in some categories of prices, he said.
Goolsbee said he is focused on whether there is a credit crunch in the wake of the collapse of Silicon Valley Bank in March.
The Chicago Fed president, who is a voting member of the Fed’s interest rate committee, said he wanted to see more data before deciding what to do at the Fed’s next meeting on May 2-3 .
“What I am looking at quite clearly coming into the next FOMC meeting is what’s happening on credit…how much of a credit crunch is there,” he said.
“Let’s be mindful that we’ve raised a lot. It takes time for that to work its way through the system,” Goolsbee said.
The March retail sales report, released earlier this morning, might be a sign of further slowing in the economy, he said. The government reported a 1% drop in retail sales, the biggest decline since November.
“If you add financial stress on top of that, let’s not be too aggressive,” he said.
The numbers: Sales at retailers dropped 1% in March and declined for the fourth time in the past five months, reflecting a slowdown in the U.S. economy and a shift in consumer-spending habits.
Retail sales are a big part of consumer spending and offer clues about the strength of the economy. Sales had been forecast to drop 0.4%, based on a Wall Street Journal poll of economists.
Receipts shrank a smaller 0.3% if auto dealers and gas stations are excluded. Car and gasoline purchases exaggerate overall retail spending.
Key details: Sales in March posted the biggest decline in four months, largely because of lower auto and gasoline sales.
A late Easter holiday might have also shifted some sales into April that normally would have taken place in March, economists say.
Sales of new vehicles and parts, an up-and-down category, fell a sharp 1.6% last month.
Receipts at gas stations declined 5.5% largely because of lower oil prices. It’s a good thing when Americans spend less on gas, however.
Americans are likely to pay more for gas in April, though, after the oil cartel OPEC cut production and prices surged.
Even after setting aside car dealers and gas stations, retail sales were weak. Sales fell in most major categories, including home centers, electronics stores and department stores.
The only segment to stand out: Internet retailers. Sales jumped 1.9%.
One category economists watch closely is bars and restaurants, the only service sector in the retail report. Restaurant receipts rose a tepid 0.1% last month after a 1.6% decline in February.
Restaurant sales tend to rise when the economy is healthy and Americans feel secure in their jobs. Sales slack off during times of economic distress.
Big picture: Retail sales haven’t fallen off a cliff, but they also aren’t rising rapidly like they did in 2021 and early 2022.
How come? High inflation has eaten away at household incomes. Government pandemic stimulus has dried up. And rising interest rates have made purchases of big-ticket items such as cars more expensive.
Americans are still spending plenty to get out and about, however.
Americans have been spending more on services such as travel, hospitality and recreation and less on goods such as consumer electronics and home-office supplies. That’s a big reversal of what happened during the pandemic.
That’s helping to keep the economy afloat. If the economy continues to slow, however, spending on services could also go slack.
Looking ahead: “U.S. retail sales fell sharply in March as consumers became more cautious, adding to other recent data releases that have signaled a deterioration [in the economy],” said economist Katherine Judge of CIBC Economics.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
fell in Friday trades after Federal Reserve Gov. Chris Waller said interest rates need to keep rising to squelch high U.S. inflation.
Series I bonds had a good two-year run at the top of the interest-rate heap, but the next 6-month rate that will be announced on May 1 is likely to fall so low that buyers probably won’t show up in record-breaking numbers.
I-bonds are priced based on two factors: a variable rate based on six months of inflation data (from October through March) and a fixed rate that is less transparently calculated. The latest CPI numbers for March indicate that the variable rate is going to pan out at an annualized rate of 3.38%, down from…
Federal Reserve officials, meeting days after the collapse of Silicon Valley Bank, agreed that the stress in the banking sector would slow U.S. economic growth, but were uncertain about how much, according to minutes of the meeting released Wednesday.
The twelve voting members on the Fed’s interest-rate committee “agree that recent developments were likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation, but that the extend of these effects were…
U.S. stock indexes traded mostly higher on Tuesday as investors cautiously looked ahead to March’s inflation data due Wednesday that could determine the Federal Reserve’s next interest-rate move, as well as to the start of the corporate earnings reporting season on Friday.
On Monday, the Dow Jones Industrial Average rose 101 points, or 0.3%, to 33,587, the S&P 500 increased 4 points, or 0.1%, to 4,109, and the Nasdaq Composite dropped 4 points, or 0.03%, to 12,084.
Wall Street’s main stock indexes mostly advanced Tuesday afternoon, as investors awaited the release of March’s consumer price index and the start of the first-quarter earnings season, with the banking sector slated to report numbers later this week.
The S&P 500 index sits less than 0.5% off its best level since mid-February as investors have become more relaxed about prospects for the U.S. economy and more accepting of the path of Federal Reserve policy.
The March employment report released last Friday showed a steady pace of job creation but with no great sign of accelerating wage inflation, which helped calm fears of a sharp economic slowdown and faster Fed interest rate hikes.
See: Why March’s CPI report could upset the stock market, seal the deal on the next rate hike
But now attention turns to the March’s consumer price index report due Wednesday, which is seen as one of the last key data points before the Federal Reserve’s next interest-rate move.
The March CPI reading from the Bureau of Labor Statistics, which tracks changes in the prices paid by consumers for goods and services, is expected to show a 5.2% rise from a year earlier, slowing from a 6% year-over-year rise in the previous month, according to a survey of economists by Dow Jones.
Core CPI, which strips out volatile food and fuel costs, is expected to rise 0.4% from a month ago, or 5.6% year over year. The increase in the core rate over the 12-month period dipped to 5.5% in February.
Meanwhile, data from China on Tuesday showing consumer inflation dipped to its lowest level in more than a year in March, is also helping ease fears about global price pressures.
Investors are wondering whether the Fed is satisfied with what it has done to fight inflation, and whether the central bank has done too much that it would drag the U.S. economy into a recession, according to Kristina Hooper, chief global market strategist at Invesco.
“Tomorrow’s data point will only help us answer that first question,” Hopper said. Meanwhile, “while CPI is important, it’s just one data point. Hopefully it will confirm what we’ve seen with other data points that there’s significant progress in fighting inflation, and hopefully that’s enough to satisfy the Fed,” Hooper said in a call.
Seema Shah, chief global strategist at Principal Asset Management, expects the decline in inflation in 2023 will likely be “incomplete with inflation remaining above central bank targets,” complicating its policy decisions.
“Global inflation is moderating, but so far this deceleration has been largely driven by last year’s energy price spike unwind. Core inflation remains uncomfortably high and, in some economies, continues to rise,” Shah said in emailed comments on Tuesday.
“Central banks have made less progress towards disinflation than they had hoped. Inflation is likely to remain sticky and will still sit above central bank targets at year-end,” Shah said.
See: High inflation and interest rates to hobble U.S. and global economies for several years, IMF says
The U.S. and global economies are likely to struggle to grow over the next few years as countries fight to reduce high inflation and cope with rising interest rates, the International Monetary Fund said Tuesday.
Meanwhile, the IMF said recent stress in the banking sector could reduce the ability of U.S. banks to lend over the next year, and materially lower U.S. economic growth.
The IMF estimated that lending capacity in the U.S. could fall by almost 1% in the coming year. That would reduce U.S. real gross domestic product by 44 basis points over that time frame, all else being equal, the IMF said.
Then, on Friday, the first-quarter corporate earnings season kicks into gear with the’ financial sector in the vanguard.
It’s particularly important to pay attention to earnings calls and guidance provided by companies’ management, noted Hooper. “That to me is where we’re likely to get the best insights or at least the most robust insights into current credit conditions, to understand what could happen to the economy,” Hooper said.
Philadelphia Fed President Harker will be speaking at 6:30 p.m. and Minneapolis Fed President Kashkari is due to speak at 7:30 p.m. Both times Eastern.
— Jamie Chisholm contributed to this article
The U.S. and global economies are likely to struggle to grow over the next few years as countries fight to reduce high inflation and cope with rising interest rates, the IMF said Tuesday.
The latest projections paint a gloomy picture of the challenges facing the world. Chief among them is high inflation, a problem the IMF said has proven stickier than expected compared to “even a few months ago.”
Price increases in goods and services other than food and gasoline are still high, the IMF said, and a tight labor market could keep upward pressure on wages.
Inflation globally is likely to average about 7% in 2023, up almost 1/2 point from the IMF estimate just three months ago.
The fund said inflation probably won’t return to the low levels that prevailed around the world until “2025 in most cases.” In the U.S., for example, inflation rose less than 2% a year in the decade before the pandemic.
Stubbornly high inflation, in turn, is likely to force the U.S. and other countries to keep interest rates high for some time.
“This may call for monetary policy to tighten further or to stay tighter
for longer than currently anticipated,” IMF director of research Pierre-Olivier Gourinchas said.
Yet rising interest rates and higher borrowing costs also risk destabilizing financial institutions as witnessed by the failure of Silicon Valley Bank in the U.S. and the emergency rescue of Switzerland-based Credit Suisse.
Recent banking instability reminds us,” Gourinchas said, “that the situation remains fragile.”
“Once again, the financial system may well be tested even more,” he added. “Nervous investors often look for the next weakest link, as they did with Crédit Suisse.”
Threats to banks could add to the stress on the economy by spurring them to lend less to businesses and consumers. Lending is critical for economic growth.
“We are therefore entering a tricky phase during which economic growth remains
lackluster by historical standards, financial risks have risen, yet inflation has not yet
decisively turned the corner,” Gourinchas said.
The U.S. economy is forecast to slow from 2.1% growth in 2022 to 1.6% in 2023 and 1.1% in 2024. Notably, the IMF does not predict a U.S. recession.
By contrast, the Federal Reserve predicts U.S. growth will slow to just 0.4% in 2023 and then rebound to a 1.2% annual pace in 2024.
Most countries in Europe are also expected to keep growing aside from the U.K. and Germany, whose economies have been harder hit by high energy prices.
The world economy is forecast to expand 2.8% in 2023 and 3% in 2024, a shade lower compared to the IMF’s forecast in at the start of the year.
Looking out to 2028, global growth is forecast at 3%, the weakest five-year outlook since the IMF began publishing them 33 years ago.
First-quarter earnings season kicks off this week. Results from big U.S. banks later in the week will be heavily scrutinized for the impact of the past month’s turmoil in the sector. Economic-data highlights will include the latest inflation data and minutes from the Federal Open Market Committee’s late-March meeting.
Albertsons
and
CarMax
will report on Tuesday, followed by
Delta Air Lines
and
Fastenal
on Thursday. Things pick up on Friday:
Citigroup
BlackRock
and
UnitedHealth Group
are all scheduled to release their first-quarter results.
Housing inflation has remained hot in recent months—but it could be approaching a turning point, according to a
Zillow
economist.
Housing costs—both the cost of buying or renting—climbed earlier in the pandemic. While data show that prices in both categories have cooled in recent months, the industry’s contribution to inflation has remained hot.
Have you got itchy feet?
The U.S. economy added 236,000 jobs in March, just shy of the 238,000 forecast by economists polled by the Wall Street Journal. The unemployment rate declined to 3.5% in March from 3.6% in February.
The latest data was calculated before the collapse of Silicon Valley Bank and Signature Bank last month, an event that…
U.S. stock-index futures turned higher in a holiday-shortened session after a solid March jobs report, though investors won’t fully digest the data until next week with cash trading in equities closed due to the Good Friday holiday.
Trading in stock-index futures closed at 9:15 a.m. Eastern. Stock-index futures resume trading at their regular time, 6 p.m., on Sunday, as U.S. markets return to normal trading hours Monday.
With…
The numbers: The U.S. added a robust 236,000 new jobs in March, defying the Federal Reserve’s hopes for a big slowdown in hiring as the central bank struggles to tame inflation. The consensus economist forecast called for a nonfarm-payrolls expansion of 238,000.
The solid increase in employment last month followed a revised 326,000 gain in February and a gain of 472,000 in January.
While the increase in hiring was the smallest monthly rise in more than two years, the number of jobs created last month was much greater than is typical.
The unemployment rate, meanwhile, slipped to 3.5% from 3.6% as more people searched for and found work. That’s another sign of labor-market vigor.
There was some good news in the report for the Fed, though.
Wage growth continued to moderate closer to level the Fed would prefer. Hourly wages increased a mild 0.3% last month, the government said Friday.
The increase in pay over the past year also slowed again to a nearly two-year low of 4.2% from 4.6% in February.
What’s more, the share of people working or looking for work rose a tick to 62.6%. That’s the highest labor-force participation rate since February 2020, the last month before the pandemic’s onset.
When more people look for work, companies don’t have to compete as hard for workers via higher pay.
Emerging evidence of slack in a muscular U.S. labor market could encourage the Fed to take a breather after a rapid series of interest-rate increases.
Still, the U.S. has added a whopping 1 million–plus new jobs in the first three months of the year. The labor market is not cooling off as much as the Fed would like.
“ The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s. ”
Stock-index futures rallied after the report, though the stock market itself is officially closed due to the Good Friday holiday.
See: Why Good Friday complicates how stock-market traders will digest March jobs report
Key details: About one-third of the new jobs created last month — 72,000 — were at service-sector companies such as bars and restaurants whose employment still has not returned to prepandemic levels.
Americans are going out to eat a lot and spending relatively more on services than on goods.
Government employment increased by 47,000. Hiring also rose at professional businesses and in healthcare. Retailers cut 15,000 jobs.
Employment fell slightly in manufacturing and construction, or goods-producing industries, which are under more pressure from rising interest rates.
The strong labor market has benefited all groups, but especially Black Americans. The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s.
Big picture: The ongoing tightness in the labor market could inflame inflation and even push the Fed to raise interest rates more than currently forecast to try to get prices under control.
Higher borrowing costs reduce inflation by slowing the economy, but most Fed rate-hike cycles since World War II have been followed by recession.
On the flip side, the U.S. economy is starting to show more signs of deterioration due to the series of rapid Fed interest-rate increases since last year.
Manufacturers have cut production and are arguably already in recession and the much larger service side of the economy is under more stress lately.
If these trends continue the economy — and inflation — are bound to slow.
The U.S. is still growing for now, however, and the labor market remains an oasis of strength.
Low unemployment and rising wages have allowed Americans to keep spending. And so far they’ve keep the economy out of a widely predicted recession.
Looking ahead: “The U.S. labor market is losing some momentum, but remains far too vibrant for the Fed to pause [its rate-hike campaign] in May,” said senior economist Sal Guatieri at BMO Capital Markets
“Although job growth is gradually slowing, it remains too strong for the Federal Reserve,” said Sal Guatieri of PNC Financial Services.
See: Traders see little chance interest rates will end up where Fed thinks in 2023
Market reaction: Futures contracts on the Dow Jones Industrial Average
YM00,
rose 64 points, or 0.2%, to 33,723. S&P 500 futures
ES00,
gained 9.75 points, or 0.2%, to 4,141.75. Stock trading resumes again on Monday.
The yield on the 10-year Treasury
TMUBMUSD10Y,
jumped to 3.36%.
MarketWatch personal finance: U.S. economy added 236,000 jobs in March. Is this your last chance to jump ship?
U.S. stock-index futures turned higher in a holiday-shortened session after a solid March jobs report, though investors won’t fully digest the data until next week with cash trading in equities closed due to the Good Friday holiday.
Trading in stock-index futures closed at 9:15 a.m. Eastern. Stock-index futures resume trading at their regular time, 6 p.m., on Sunday, as U.S. markets return to normal trading hours Monday.
With the exception of the Dow industrials, U.S. stocks finished the holiday-shortened week lower on Thursday after three consecutive weekly gains for the S&P 500 and the tech-heavy Nasdaq. The Dow
DJIA,
rose 0.6% for the week, while the S&P 500
SPX,
shed 0.1% and the Nasdaq
COMP,
slumped 1.1%, after scoring its best quarter since 2020.
The U.S. added 236,000 new jobs in March, defying the Federal Reserve’s hopes for a big slowdown in hiring and possibly making it harder for the central bank to tame inflation. Economists polled by The Wall Street Journal had forecast 238,000 new jobs.
The unemployment rate, meanwhile, slipped to 3.5% from 3.6%. Wages rose 0.3% last month.
“This month’s report indicates that interest rate hikes have yet to impact tight unemployment conditions,” said Steve Rick, chief economist at CUNA Mutual Group, in emailed comments.
Treasury yields popped higher and the dollar rose, though traders noted conditions were thin due to the holiday. Fed-funds futures showed traders pricing in a nearly 70% chance the Federal Reserve will lift interest rates by a quarter-point in May and a roughly 30% chance policy makers will leave rates unchanged. Traders had seen a roughly 50-50 split on Thursday.
“Today’s jobs report is consistent with a slow-moving recession unfolding in the U.S. and one that does not point to immediate resolution of inflation concerns,” said Jason Pride, chief investment officer of private wealth at Glenmede, in a note. “As such, the odds of another quarter-point rate hike in May should go higher as the data does not appear to justify a Fed pause.”
That said, policy makers and investors will see a raft of data before the next Fed meeting, including next week’s consumer-price index reading, Pride noted.
Good Friday is a market holiday but not a U.S. federal holiday. That means the U.S. Labor Department released its March jobs report, as usual. Bond traders will see a half day of trading, with Sifma recommending a noon ET close to allow a reaction to the data.
Read: Why Good Friday complicates how stock-market traders will digest March jobs report
Investors saw a stream of jobs-related data over the course of the past week. Data on Tuesday showed the number of U.S. job openings dropped below 10 million to a 21-month low, indicating a hot jobs market may be starting to lose some sizzle.
ADP on Wednesday said the private sector added 145,000 jobs in March, well below the 210,000 expected by economists. Weekly jobless claims data on Thursday morning showed first-time applications for benefits last week came in higher than expected.
The numbers: The U.S. added a robust 236,000 new jobs in March, defying the Federal Reserve’s hopes for a big slowdown in hiring as the central bank struggles to tame inflation. The consensus economist forecast called for a nonfarm-payrolls expansion of 238,000.
The solid increase in employment last month followed a revised 326,000 gain in February and a gain of 472,000 in January.
While the increase in hiring was the smallest monthly rise in more than two years, the number of jobs created last month was much greater than is typical.
The unemployment rate, meanwhile, slipped to 3.5% from 3.6% as more people searched for and found work. That’s another sign of labor-market vigor.
There was some good news in the report for the Fed, though.
Wage growth continued to moderate closer to level the Fed would prefer. Hourly wages increased a mild 0.3% last month, the government said Friday.
The increase in pay over the past year also slowed again to a nearly two-year low of 4.2% from 4.6% in February.
What’s more, the share of people working or looking for work rose a tick to 62.6%. That’s the highest labor-force participation rate since February 2020, the last month before the pandemic’s onset.
When more people look for work, companies don’t have to compete as hard for workers via higher pay.
Emerging evidence of slack in a muscular U.S. labor market could encourage the Fed to take a breather after a rapid series of interest-rate increases.
Still, the U.S. has added a whopping 1 million–plus new jobs in the first three months of the year. The labor market is not cooling off as much as the Fed would like.
“ The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s. ”
Stock-index futures rallied after the report, though the stock market itself is officially closed due to the Good Friday holiday.
See: Why Good Friday complicates how stock-market traders will digest March jobs report
Key details: About one-third of the new jobs created last month — 72,000 — were at service-sector companies such as bars and restaurants whose employment still has not returned to prepandemic levels.
Americans are going out to eat a lot and spending relatively more on services than on goods.
Government employment increased by 47,000. Hiring also rose at professional businesses and in healthcare. Retailers cut 15,000 jobs.
Employment fell slightly in manufacturing and construction, or goods-producing industries, which are under more pressure from rising interest rates.
The strong labor market has benefited all groups, but especially Black Americans. The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s.
Big picture: The ongoing tightness in the labor market could inflame inflation and even push the Fed to raise interest rates more than currently forecast to try to get prices under control.
Higher borrowing costs reduce inflation by slowing the economy, but most Fed rate-hike cycles since World War II have been followed by recession.
On the flip side, the U.S. economy is starting to show more signs of deterioration due to the series of rapid Fed interest-rate increases since last year.
Manufacturers have cut production and are arguably already in recession and the much larger service side of the economy is under more stress lately.
If these trends continue the economy — and inflation — are bound to slow.
The U.S. is still growing for now, however, and the labor market remains an oasis of strength.
Low unemployment and rising wages have allowed Americans to keep spending. And so far they’ve keep the economy out of a widely predicted recession.
Looking ahead: “The U.S. labor market is losing some momentum, but remains far too vibrant for the Fed to pause [its rate-hike campaign] in May,” said senior economist Sal Guatieri at BMO Capital Markets
“Although job growth is gradually slowing, it remains too strong for the Federal Reserve,” said Sal Guatieri of PNC Financial Services.
See: Traders see little chance interest rates will end up where Fed thinks in 2023
Market reaction: Futures contracts on the Dow Jones Industrial Average
YM00,
rose 64 points, or 0.2%, to 33,723. S&P 500 futures
ES00,
gained 9.75 points, or 0.2%, to 4,141.75. Stock trading resumes again on Monday.
The yield on the 10-year Treasury
TMUBMUSD10Y,
jumped to 3.36%.
MarketWatch personal finance: U.S. economy added 236,000 jobs in March. Is this your last chance to jump ship?
The numbers: The U.S. added a robust 236,000 new jobs in March, defying the Federal Reserve’s hopes for a big slowdown in hiring as the central bank struggles to tame inflation. The consensus economist forecast called for a nonfarm-payrolls expansion of 238,000.
The solid increase in employment last month followed a revised 326,000 gain in February and a gain of 472,000 in January.
While the increase in hiring was the smallest monthly rise in more than two years, the number of jobs created last month was much greater than is typical.
The unemployment rate, meanwhile, slipped to 3.5% from 3.6% as more people searched for and found work. That’s another sign of labor-market vigor.
There was some good news in the report for the Fed, though.
Wage growth continued to moderate closer to level the Fed would prefer. Hourly wages increased a mild 0.3% last month, the government said Friday.
The increase in pay over the past year also slowed again to a nearly two-year low of 4.2% from 4.6% in February.
What’s more, the share of people working or looking for work rose a tick to 62.6%. That’s the highest labor-force participation rate since February 2020, the last month before the pandemic’s onset.
When more people look for work, companies don’t have to compete as hard for workers via higher pay.
Emerging evidence of slack in a muscular U.S. labor market could encourage the Fed to take a breather after a rapid series of interest-rate increases.
Still, the U.S. has added a whopping 1 million–plus new jobs in the first three months of the year. The labor market is not cooling off as much as the Fed would like.
“ The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s. ”
Stock-index futures rallied after the report, though the stock market itself is officially closed due to the Good Friday holiday.
See: Why Good Friday complicates how stock-market traders will digest March jobs report
Key details: About one-third of the new jobs created last month — 72,000 — were at service-sector companies such as bars and restaurants whose employment still has not returned to prepandemic levels.
Americans are going out to eat a lot and spending relatively more on services than on goods.
Government employment increased by 47,000. Hiring also rose at professional businesses and in healthcare. Retailers cut 15,000 jobs.
Employment fell slightly in manufacturing and construction, or goods-producing industries, which are under more pressure from rising interest rates.
The strong labor market has benefited all groups, but especially Black Americans. The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s.
Big picture: The ongoing tightness in the labor market could inflame inflation and even push the Fed to raise interest rates more than currently forecast to try to get prices under control.
Higher borrowing costs reduce inflation by slowing the economy, but most Fed rate-hike cycles since World War II have been followed by recession.
On the flip side, the U.S. economy is starting to show more signs of deterioration due to the series of rapid Fed interest-rate increases since last year.
Manufacturers have cut production and are arguably already in recession and the much larger service side of the economy is under more stress lately.
If these trends continue the economy — and inflation — are bound to slow.
The U.S. is still growing for now, however, and the labor market remains an oasis of strength.
Low unemployment and rising wages have allowed Americans to keep spending. And so far they’ve keep the economy out of a widely predicted recession.
Looking ahead: “The U.S. labor market is losing some momentum, but remains far too vibrant for the Fed to pause [its rate-hike campaign] in May,” said senior economist Sal Guatieri at BMO Capital Markets
“Although job growth is gradually slowing, it remains too strong for the Federal Reserve,” said Sal Guatieri of PNC Financial Services.
See: Traders see little chance interest rates will end up where Fed thinks in 2023
Market reaction: Futures contracts on the Dow Jones Industrial Average
YM00,
rose 64 points, or 0.2%, to 33,723. S&P 500 futures
ES00,
gained 9.75 points, or 0.2%, to 4,141.75. Stock trading resumes again on Monday.
The yield on the 10-year Treasury
TMUBMUSD10Y,
jumped to 3.36%.
MarketWatch personal finance: U.S. economy added 236,000 jobs in March. Is this your last chance to jump ship?
Normally a big increase in new U.S. jobs is cause for celebration. Not right now.
The Federal Reserve sees a tight labor market as a big obstacle in getting high inflation under control and wants hiring to slow as soon as possible, but it might not get its wish in March.
…
The numbers: The number of Americans applying for jobless benefits has topped 200,000 for nine weeks in a row and looks worse than previously reported, based on a change in how the government adjusts for seasonal swings in employment.
The newly revised data suggest the labor market has softened more than it had appeared.
In the seven days…
The trade deficit widened 2.7% in February to a four-month high of $70.5 billion and pointed to more stress on the U.S. economy.
The trade gap rose from $68.7 billion in January and was slightly above Wall Street forecasts.
Both imports and exports fell in February, reflecting weaker growth in the U.S. and abroad.
Key details: Imports fell 1.5% to $321.7 billion in February to extend a recent string of declines, the government’s trade report showed.
Part of the drop reflects lower oil prices, but Americans have also trimmed spending in response to rising interest rates and a slower economy
In February, imports of cell phones, consumer goods, clothing and drugs retreated.
A further decline in imports would be a potential warning sign of worse to come. They have declined 8% since peaking in March 2021.
Exports slid a sharper 2.7% to $251.2 billion and also continued a recent downtrend. Just seven months ago they touched a record high.
A weaker global economy could further sap demand for American goods and services.
In February, exports of industrial supplies, autos and parts, consumer goods and passenger planes all declined.
Big picture: The U.S. is on track to break a string of three straight years of rising and record deficits, but not for reasons conducive to a healthy economy.
Looking ahead: “The sharp declines in both exports and imports in February add to the signs that economic growth is faltering,” said deputy chief U.S. economist Andrew Hunter of Capital Economics.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open slightly lower in Wednesday trades.
The numbers: A key barometer of U.S. factories was negative in March for the fifth month in a row, reflecting an ongoing struggle by a key part of the economy to resume growth.
The Institute for Supply Management’s manufacturing survey dropped to 46.3% from 47.7% in the prior month. That’s the lowest level since May 2020, when the pandemic show down much of the U.S. economy.
Numbers below 50% signal that the manufacturing sector is contracting. The last time the index fell five months in a row was in 2019, during a trade fight with China.
The ISM report is viewed as a window into the health of the economy, and it shows growing strains. New orders shrank to a level historically associated with recession, for example.
Economists polled by the Wall Street Journal had forecast the index at 47.3%.
Key details:
Big picture: Manufacturers have battled supply shortages, high inflation and rising interest rates over the past year.
While the shortages are clearing up and inflation is slowing, interest rates are still rising, boosting the odds of recession both in the U.S. and abroad.
The result: The near-term outlook for manufacturers is still quite cloudy. More companies are tackling the problem with hiring freezes or even layoffs.
“Now companies are facing the reality that demand is not going to come back to support the current level of employment,” said Timothy Fiore, chair of the ISM survey.
Looking ahead: “The new orders index is very much in recessionary territory, with only one previous occasion over the past 60 years where the index has fallen to that level without an economic contraction following,” noted deputy chief U.S. economist Andrew Hunter of Capital Economics.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
rose in Monday trades.