March’s job report allayed fears that the current economic boom may be slowing – at least for another quarter. Fomented by February’s creation of a paltry 33,000 nonfarm jobs, some observers worried that the American Shangri-La of low inflation and minuscule unemployment was coming to an end. However, the employment numbers rebounded in March to a robust 196,000.
The stock market also reversed less-than-stellar news. The major indices gained 14 percent, recouping losses sustained at the end of 2018. The combination was enough to quell fears of an imminent interest rate hike that could put the brakes on economic expansion. Inflation may be too low for optimal growth. Prices rose slightly to hit the Fed’s preferred 2 percent inflation rate, but it has consistently hovered below that threshold for much of Donald Trump’s presidency. Job growth would indicate a further tightening of supply. Unemployment held steady at 3.8 percent, maintaining near-historic lows. However, wages increased by just 0.1 percent, a quarter that of the previous month. Because lending hikes are designed to quell cycles of rapidly rising wages and inflation, there now seems little reason to raise rates. At the same time, as long as the labor market remains strong, there is small case to be made for reversing the Fed’s
One Federal Reserve president expressed optimism that interest rates could remain at the present low rates for another year. Charles Evans, president of the Chicago Federal Reserve, told CNBC that “I can see the funds rate being flat and unchanged into the fall of 2020. For me, that’s to help support the inflation outlook and make sure it’s sustainable.”
That’s a market reversal of the Fed’s previous leanings. Rates rose four times in 2018, and the central bank had projected two additional hikes would be appropriate in 2019.
March’s rosy employment numbers countered February’s lowest job gain in 17 months. Construction, healthcare, transportation, education, government, and warehousing all added jobs in March. Manufacturing lost 6,000 positions, a statistic that could continue as demand for cares is in a downward cycled. Still, consensus estimates peg job growth at an average of 150,000 per month for the rest of the year. Key industries such as construction and manufacturing, however, may face continued difficulty in filling open positions, owing to an aging workforce and labor participation rate near 5-year lows.
While the short-term outlook promises continued strength in jobs and the overall economy, prospects beyond the news quarter are much less certain. The Quarter 1 gross domestic product report that showed robust 3.2 percent growth, easily besting experts’ consensus 2.4 percent estimates. Still, pessimists point out that much of that growth came in the form of increased inventories and exports. Domestic spending and business investments in plant expansions were sorely lacking, they say. If the economy promised to maintain the first quarter’s momentum, they contend, average Americans would be willing to finance cars, upgrade their appliances. Moreover, if producers felt the economy was as strong as the 3.2 percent number indicates, they would be tripping over themselves to increase production capacity so they could sell more products to meet consumer demand.
Of course, as long as economic observers keep predicting an end to the current economic expansion, it’s only a matter of time until they will be proven right.