Weekly Economic Trends and Indicators

The Headline:

On April 7, the Bureau of Labor Statistics (BLS) released monthly employment data for March. According to the establishment survey, employment increased by 236,000 jobs. This was on target with expectations. According to the household survey, the unemployment rate stood at 3.5%. The labor force participation rate reached its highest level in three years, 62.6%, and now is only 0.7 percentage points below pre-pandemic levels.

The Details:

Leisure and hospitality, government, and professional and business services were the sectors that added the most jobs, consistent with the last few months. Most other industries, including manufacturing, showed little change.

Earlier this week (April 4), the BLS released the Job Openings and Labor Turnover Survey (JOLTS). While unemployment tends to be a lagging indicator of economic activity, job openings can sometimes give some advance insight into the conditions of the labor market. On a seasonally adjusted basis, job openings were down by 632,000 in February. Nearly half of the decrease is from the professional and business services sector. Even though this sector added jobs in March, the decline in openings will likely translate to fewer jobs created later in the year.

The Context:

In the two weeks since the Federal Reserve’s decision to raise the target fed funds rate by 25 basis points, the financial press has been speculating on when the rate hikes will end and when the Fed may actually begin cutting rates. Many in the market believe that rate cuts will begin later this year in response to an economy that they see as already showing signs of slowing.

Yet the national economy continues to defy the naysayers with continued job growth in the face of strong headwinds. This leaves many asking how long this can go on. The JOLTS report is evidence that this tight labor market is finally returning to something more sustainable. The Fed’s rate hikes are working. Job growth is expected to continue to slow in the months ahead, but the overall labor picture is strong enough to suggest that the rate hikes are not finished.

Job growth and the unemployment rate tend to be lagging indicators of the economy. The sudden spike in unemployment that often accompanies a recession usually occurs after the recession has already begun. However, there are often some warning signs that appear in the months preceding a recession, such as lower numbers of job openings and gradual upticks in unemployment. Hence every new data point is highly anticipated right now and subject to intense scrutiny.

Over the rest of the year, we will likely continue to see different sectors of the labor market behaving differently. Interest rate sensitive sectors will show signs of weakness first. At the same time, leisure and hospitality will continue adding back jobs that were lost to the pandemic, although JOLTS data suggest that even that will slow down sometime later this year.

Next week: Part two of a series on characteristics of the local Quad Cities economy