Progress, Not Victory

Eakinomics: Progress, Not Victory   On Friday the Bureau of Labor Statistics released the March employment report. The toplines were solid. Payroll employment rose by 236,000 and the unemployment rate edged down to 3.5 percent (from 3.6 percent in February). Nevertheless, the report indicated some cooling in the hot U.S. labor market. The unemployment rate was essentially unchanged, while job creation was noticeably below the 345,000 average for the previous three months.  Average weekly hours worked dropped slightly, while average hourly earnings rose at an annual rate of 3.3 percent. This is slower than the 4.2 percent growth over the past 12 months. Taken as a whole, this indicates that labor demand – proxied by the growth of payrolls – is cooling. Year-over-year growth in payrolls (shown as the orange line in the chart below) has cooled greatly from a high of 16.1 percent in April 2021 and double digits in early 2022.    Similarly, in March labor force participation rose to 62.6 percent from 62.5 in February. This allowed the labor force to grow at a year-over-year rate of 1.5 percent (shown as the blue line in the chart).   In short, the latest report suggests a narrowing of the gap between demand and supply of labor. It is consistent, as well, with other data received last week. The Job Openings and Labor Turnover survey indicated a decline of over 600,000 job openings, only 145,000 jobs in the ADP Employment Report, and a continued rise in new claims for unemployment. Here’s the catch. In and of itself, nobody should root for fewer jobs, fewer hours of work, or slower growth in wages. These are only of interest as indicators of success by the Fed in cooling the growth of demand in the economy.   Thus, the only real measure of success is reduced inflation itself. The next read on inflation will be the release of the Consumer Price Index report for March on Wednesday. Stay tuned.