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The prevailing story of a strong US economy hasn’t changed much in the past year as economic data has persistently topped Wall Street’s expectations.
Friday’s March jobs report was more of the same.
The economy added 303,000 jobs during the month, nearly 100,000 more than consensus expectations. The unemployment rate fell to 3.8%, hovering near a historically low level, while the percentage of Americans participating in the workforce increased.
"The data leaves us borderline speechless," Jefferies US economist Tom Simons wrote in a note to clients on Friday. "We were optimistic about the payroll numbers coming into today based on recent trends in jobless claims and momentum from prior months, but we did not expect to see such strong data around the periphery and within the details."
It’s the latest in a recent string of positive economic news. Earlier this week, data showed the manufacturing sector has entered expansion territory. Meanwhile, the hiring rate is at a steady pace seen prior to the pandemic and layoffs have held in a low range, signaling no sign of a slowdown in labor market activity. This comes as labor productivity is picking up for the first time in 15 years.
All of these incremental pieces have forecasters boosting their outlook for US economic growth for 2024. Consensus now sees quarter-over-quarter real economic growth coming in at 2% for the first three months of the year, up from the 1.8% projection seen in March.
Supply and demand
A key factor in the robust economy has been a rise in the US population, and subsequently, an increase of available workers. According to the data released Friday, March labor force participation picked up to 62.7% from 62.5% in February. That rate stands just below the 62.8% reading seen just before the pandemic. This came as wage growth, a potential indicator of future inflationary pressures, decreased to 4.1%, its lowest level since June 2021.
This exemplifies an ideal scenario for the labor market, where job growth continues but not at the cost of higher inflation.
BlackRock chief investment officer of global fixed income Rick Rieder reasoned the "positive" supply shock from increased immigration is helping create the current "pro-growth" yet disinflationary labor market dynamics.
The economics team at Goldman Sachs also recently referenced increased immigration when boosting their GDP forecast this year. On Friday, the team’s chief US economist David Mericle wrote this likely won’t come at the cost of higher inflation.
"We expect the supply-side potential of the economy to continue growing somewhat faster than usual this year because elevated immigration is boosting labor force growth," Mericle wrote. "This means that strong demand growth shouldn’t worsen the economy’s supply-demand balance by much, if at all, because supply is nearly keeping up."
Fed chair Jerome Powell recently acknowledged this could be a possible outcome for the economy this year and that further expansion of the labor market in it of itself isn’t necessarily a concern for the Fed’s fight against inflation.
"What we’re getting is a lot of supply and a lot of demand, and that supply is actually feeding demand because workers are getting paid and they’re spending," Powell said in a press conference on March 20.
He added: "What you would have is potentially kind of what you had last year, which is a bigger economy where inflationary pressures are not increasing."
Still, strong economic growth has made investors wary of hoping for Federal Reserve interest cuts any time soon. Investors are now placing a 54% chance the Fed cuts rates in June, down from a roughly 72% chance seen a month ago.
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