The employment market continues to be strong in the United States and this is one of the factors we believe that has caused inflation to spike so strongly. This is a data point the Federal Reserve watches very closely; the strength of the labor market. DWM does as well.
Though the job market remains strong, there is some evidence that the increases in interest rates is starting to have an effect on the overall economy. This is a positive development.
A closely watched indicator is the number of jobs created in the economy. The statistics released this week suggest that job creation is slowing considerably. For the overall outlook of the economy, this suggests that inflation may slow as there will be less employed consumers in the consumption marketplace.
We believe the Federal Reserve’s effort at breaking inflation will be successful. Our base case scenario is that the United States economy is moving towards a shallow recession with a bounce back in the fourth quarter.
A recent CNBC article highlighted this week’s jobs report showing a slowing in job creation. Excerpts are provided below.
“Private sector hiring decelerated in March, flashing another potential sign that U.S. economic growth is heading for a sharp slowdown or recession, payroll processing firm ADP reported Wednesday.
Company payrolls rose by just 145,000 for the month, down from an upwardly revised 261,000 in February and below the Dow Jones estimate for 210,000.
That took first-quarter hiring to an average of just 175,000 jobs a month, down from 216,000 in the fourth quarter and a sharp reduction from the average of 397,000 in the first quarter of 2022.
“Our March payroll data is one of several signals that the economy is slowing,” said ADP’s chief economist, Nela Richardson. “Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down.”
Annual pay rose at a 6.9% rate in March, down from 7.2% in February, according to the firm’s calculations. Job growth was almost evenly split between services and goods-producing firms, an unusual occurrence.
The U.S. economy is heavily services-oriented, so that sector generally produces much stronger hiring gains. The data released Wednesday showed a gain of 75,000 in services and 70,000 in goods producers.”