The general view that the U.S. economy is doing well hasn't changed much over the past year, as economic data has consistently outperformed Wall Street expectations.
Friday's March employment report was much the same.
Economic growth for the month added 303,000 jobs, nearly 100,000 more than consensus expectations. The unemployment rate fell to 3.8%, remaining near historic lows, while the share of Americans participating in the labor force increased.
“This data leaves us almost speechless,” Jefferies U.S. economist Tom Simmons wrote in a note to clients on Friday. “While we were optimistic about the payroll numbers to be released today given the recent trends in unemployment claims and the momentum from last month, we did not expect such strong data on the fringes and details. It wasn't.”
This is the latest in a series of recent positive economic news. Data earlier this week showed that manufacturing has entered expansion territory. Meanwhile, hiring rates remain at a steady pace similar to pre-pandemic levels, and layoffs remain in the low range. This suggests that there is no sign that labor market activity is slowing down.This occurs as labor Productivity is up for the first time in 15 years.
All of this incremental content is giving forecasters a boost in their outlook for U.S. economic growth in 2024. The current consensus is for real economic growth to be 2% sequentially in the first three months of this year, an upward revision from the 1.8% forecast for 2024. march.
demand and supply
A key factor in the strong economy is the growing U.S. population and the resulting increase in available workers. The labor force participation rate rose to 62.7% in March from 62.5% in February, according to data released Friday. This rate is slightly lower than the 62.8% just before the pandemic. This came after wage growth, a potential indicator of future inflationary pressures, fell to 4.1%, the lowest level since June 2021.
This exemplifies the ideal scenario of a labor market with increasing employment. Inflation will continue, but at the cost of higher inflation rates.
Rick Rieder, BlackRock's chief investment officer for global fixed income, said the “positive” supply shock from increased immigration has helped create the current “pro-growth” but disinflationary labor market dynamics. discussed.
Goldman Sachs' economics team also recently cited increased immigration when raising its GDP forecast for this year. On Friday, the team's chief U.S. economist, David Mericle, said this was unlikely to come at the expense of higher inflation.
“We expect the economy's supply-side potential to continue to grow at a slightly faster pace than usual this year as increased immigration boosts labor force growth,” Mericle wrote. “This means that while strong demand growth may worsen the economy's supply-demand balance, it should not worsen it by much, as supply has largely caught up.”
Federal Reserve Chairman Jerome Powell recently acknowledged that this could be a possible outcome for the economy this year, and that further expansion of the labor market itself is not necessarily a concern for the Fed's fight against inflation.
“What we have is a lot of supply and a lot of demand,” Powell said at a press conference on March 20. “Because workers are getting paid and they're consuming, that supply isn't actually meeting demand. “
He added: “The situation in the broader economy, where inflationary pressures are not building, will potentially be similar to last year's situation.”
Still, strong economic growth has made investors cautious about expecting the Federal Reserve to cut interest rates anytime soon. Investors now see a 54% chance that the Fed will cut interest rates in June, down from about 72% chance a month ago.
But the decline in expectations for Fed rate cuts has done little to sway stock prices, as the three major indexes rose on Friday.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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