Here’s The Latest On The Job Market

Key Takeaways

• The Bureau of Labor Statistics has released their unemployment report today, showing that 236,000 new jobs were added in March, bringing the unemployment rate down slightly to 3.5%
• That’s right in line with projections of 238,000 new jobs from economists polled by the Wall Street Journal
• It’s a relatively flat picture, but overall the job market is looking weaker when this data is looked at in conjunction with the jobless claims and ADP private payrolls figures from this week
• For investors, it’s evidence that points to a potential change in the Fed’s tightening policy, with all eyes on CPI next week

It’s been a week full of jobs figures as the latest unemployment report from the Bureau of Labor Statistics was released today. This follows on from the ADP private payrolls report and the jobless claims data from earlier in the week, giving us a solid overview of where the job market is at right now.

The headline is that it’s headed in the right direction, with a weakening picture overall, but not too weak.

For investors, there’s a lot to be taken from employment data, because it’s directly correlated to the state of the economy. And the state of the economy has a major bearing on the performance of the business (and therefore stock prices) that make it up.

Today we’re going to look at all this recent employment data, and explain the key takeaways for investors.

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The state of the job market

We’ve seen three key reports released this week, all looking at the job market from different angles. Sometimes it’s valuable to pick through the specific nuances of each of them, but even more powerful is the ability to find trends and themes across all three.

ADP Employment

The ADP Employment Report was out on Wednesday, which looks at private sector payrolls for the previous month. This means that it excludes government employment, so it’s a number to watch closely for investors as government hiring can obscure the health of the private sector, even during recessions or economic downturns.

The figures for March came in at 145,000 new private payrolls added, which was significantly below the consensus estimate of 210,000. It means that the overall state of the private sector job market is weakening.

Jobless claims

New jobless claims are the number of new people who are applying for unemployment benefits. It’s looking at the employment market from a different angle, reflecting workers who have been laid off.

Unlike the other jobs reports, this data is available weekly, providing a highly accurate and almost real-time view of the job market.

The figure for last week came in at 228,000 new jobless claims, above the forward estimate of 200,000 and the ninth week in a row that the figure has been above 200,000. It’s further data pointing to a slowdown in the job market.

Bureau of Labor Statistics Unemployment Report

While the ADP report looks only at private sector payrolls, the BLS unemployment report covers both the private and public sector. This looks at the total number of new jobs that were added in the previous month, providing a broad overview of the employment market as a whole.

As well as offering up the specific number of jobs that were added, it’s also the report that calculates the official unemployment rate.

For March, this unemployment rate remains at historically low levels, falling even further down to 3.5% from 3.6% the month before. Total new jobs added to the economy came in at 236,000 which is almost exactly in line with the forecasted 238,000.

What the latest unemployment figures mean for investors

All of this data is pointing in one direction. Down. And by that we mean it’s showing a very hot job market is finally starting to cool down. New jobs are down across both the private and the public sector, and the unemployment claims are on the rise.

The only piece of data that isn’t aligned with that is the official unemployment rate, which went down slightly to 0.1%. Broadly speaking that’s essentially flat, and doesn’t reflect anything much other than statistical noise.

So what does all this mean for investors?

Well it’s generally good news. 2022 was a horror year for both stocks and bonds, as rising interest rates and crumbling confidence sent assets into a tailspin. It’s been a much better start to 2023, with the efficiency gains made by companies (along with significantly lower valuations) providing the potential for some serious upside when the recovery comes.

But the main person standing in the way of that recovery is Fed chairman Jerome Powell.

Inflation has come down substantially since its peak, but with CPI still at 6%, it’s far higher than the Fed’s objective of between 2-3%. That’s meant the Fed has held steady in their plan for rate hikes, despite the weakening employment market and banking collapses on both sides of the Atlantic.

The longer this trend continues, the more likely it is that we’ll see a change to that tightening cycle. The Fed’s preferred measure of inflation, Core PCE, came in slightly below expectations last week, and all eyes will be on the CPI report due next week.

If those figures also continue to trend down, the Fed will have to pause their cycle of rate hikes.

When that happens, markets are likely to respond positively. After all, higher interest rates reduce consumer spending and puts additional pressure on businesses. The prospect of this being pulled back, and even potential rate cuts on the horizon, is likely to boost confidence. And stock prices.

To be clear, this is likely still some way off. While we could see a pause in rate hikes in May depending on the CPI data, it doesn’t mean that no further rate hikes are on the cards. Jay Powell has stated many times that they will be guided by the data, and if the labor market begins to heat up again then it’s likely that right hikes would re-commence.

The bottom line

Overall the job market is slowing down, which is surprisingly what we want right now. In order to bring inflation back down to normal levels, we need the economy to cool off. And that means less jobs.

While it might mean some pain in the short term, it can’t be argued that the high rates of inflation have been terrible for households and consumers alike. Bringing that down is, rightly, a high priority.

For investors, the numbers can provide some early indicators as to what the markets might do, but like any piece of data, it’s not a perfect predictor.

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