The labor market in the USA is doing surprisingly well – which makes a rapid turnaround in interest rates less likely. A robust job trend can lead to wage increases and thus higher inflation.
Far more jobs were added to the US labor market in March than expected. 303,000 new non-farm jobs were created, according to the government’s jobs report released today. Economists surveyed by the Reuters news agency had only expected 200,000, after 270,000 new jobs in February.
“The series of good labor market data just won’t let up. The fact that the labor market is running smoothly is good news for all employees in the USA,” says Thomas Gitzel, chief economist at VP Bank. However, the good labor market data also poses a problem for the US Federal Reserve: “The better and the longer the US economy stays on its solid growth path – and the labor market is a good indicator for this – the more the question arises whether interest rate cuts are necessary at all.”
Other economists such as Ulrich Wortberg from Helaba or Bastian Hepperle from Hauck Aufhäuser Lamp also question the Fed’s announced interest rate cut. “The first interest rate cut step is currently wobbling a lot,” said Hepperle after the US data was announced.
Higher wages and fewer unemployed people
The separately determined unemployment rate, which was also announced today, was 3.8 percent in March. Experts had expected 3.9 percent. The total number of unemployed is given as 6.4 million. In a longer comparison, unemployment remains comparatively low.
The development of hourly wages also points to a stronger labor market: wage growth increased slightly in March. Average hourly wages rose 0.3 percent from the previous month, the U.S. Department of Labor said today.
Inflation also increased
Most recently, inflation data from February had also significantly dampened hopes of an imminent interest rate cut: According to data from the Department of Labor, consumer prices in the USA rose by 3.2 percent in February of this year – after 3.1 percent in January.
At this point in time, economists were already questioning an imminent turnaround in interest rates: “The key interest rate cuts by central banks that are generally expected for summer 2024 are not a sure-fire success,” says DekaBank. The Fed actually wanted to begin its interest rate turnaround in the summer and slowly lower interest rates again.
The key interest rate in the USA is currently in the range of 5.25 to 5.50 percent, after some aggressive increases. There was also no change in the interest rate decision at the end of March. In their updated outlook in March, the monetary authorities also signaled that the key interest rate was likely to fall by a total of 0.75 percentage points over the course of the year. That would mean up to three interest rate steps downwards – but according to the latest labor market data, such prospects are becoming less likely.
The labor market data was met with little enthusiasm on the stock markets: the DAX recently fell by 1.28 percent to 18,167.39 points. The MDAX lost 1.19 percent to 26,942.89 points on Friday afternoon. Stock markets across Europe were also weak.
The reaction on the US stock exchanges was far less clear. The leading index Dow Jones even started the last trading day of this week with a slight increase of 0.15 percent.