Evelyn Reynolds

The U.S. labor market surprised economists with its strength once again, adding more than 300,000 jobs in March, with a few key sectors continuing to fuel its growth.
Health care and social assistance were the top sector for job gains — a common theme in recent years — adding 81,300 jobs. Government and leisure and hospitality were the next two strongest sectors, and together these top groups accounted for more than 60% of March’s gains.

Within health care, ambulatory services and hospitals combined to add 55,000 jobs, according to the Bureau of Labor Statistics. Local government was another strong subgroup for hiring, growing by 49,000 jobs.
Notably, the leisure and hospitality sector is now back to its pre-pandemic employment level, according to the BLS. Employment in this area, which includes bars and restaurants, fell dramatically in 2020 when many such establishments were closed for health concerns.
The continued rebound of these jobs, along with strong months for sectors like construction, could be a sign that immigration is helping the labor market grow without putting too much upward pressure on wages. The Bureau of Labor Statistics noted that the labor force participation has changed little in the past year despite consistent upside surprises for job gains.
“Last year, half of the growth in the labor force came from net immigration. There were 5.2 million additional jobs last year, thanks to net immigration. It’s been the key to rebalancing the labor market. It’s a huge part of the reason we’ve got the growth that we’ve got and the disinflation that we’ve had,” Stony Brook University professor Stephanie Kelton said Friday on “Squawk Box.”

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Job creation in March easily topped expectations in a sign of continued acceleration for what has been a bustling and resilient labor market.
Nonfarm payrolls increased 303,000 for the month, well above the Dow Jones estimate for an increase of 200,000 and higher than the downwardly revised 270,000 gain in February, the Labor Department’s Bureau of Labor Statistics reported Friday.

The unemployment rate edged lower to 3.8%, as expected, even though the labor force participation rate moved higher to 62.7%, a gain of 0.2 percentage point from February. A broader measure that includes discouraged workers and those holding part-time positions for economic reasons held steady at 7.3%.
In the key average hourly earnings measure, wages rose 0.3% for the month and 4.1% from a year ago, both in line with Wall Street estimates.

Job growth came from many of the usual sectors that have powered gains in recent months. Health care led with 72,000, followed by government (71,000), leisure and hospitality (49,000) and construction (39,000). Retail trade contributed 18,000 while the “other services” category added 16,000.
“This is another really strong report,” said Lauren Goodwin, economist and chief market strategist at New York Life Investments. “This report and the February report showed some broadening in terms of job creation, which is a very good sign.”
Despite the move lower in the broader unemployment level, the rate for Black people surged to 6.4%, a gain of 0.8 percentage point, tying the highest level since August 2022. Rates for Asians and Hispanics both fell sharply to 2.5% and 4.5% respectively.

Markets have been keeping close watch over the employment data particularly as the Federal Reserve weighs its next moves on monetary policy. Stocks have tumbled this week amid concerns that a strong labor market and resilient economy could keep the central bank on hold for longer than expected.
Stock market futures rose following the report while Treasury yields also added to gains.
The Fed is looking to guide inflation back down to 2% annually, a goal that has proven elusive even as the rate of price gains has decelerated from its peak in mid-2022. Most measures have inflation running above 3%, though the Fed’s preferred gauge is below that level.
Market pricing is pointing toward the first interest rate cut coming in June, though several Fed officials, including Chair Jerome Powell, this week indicated they prefer to take a cautious data-dependent approach. The BLS on Wednesday will release its consumer price index reading for March.
Despite a string of positive gains that has kept unemployment below 4% since January 2022, there have been some signs of cracks. For instance the level of household employment had grown only modestly over the past year while temporary employment has declined sharply.
However, the household survey, which is used to calculate the unemployment rate, posted an even more robust gain in March, up 498,000, more than absorbing the 469,000 increase in the civilian labor force level.
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The U.S. Federal Reserve has become too data dependent and has lost sight of its overall strategy, Mohamed El-Erian, chief economic advisor at Allianz, said Friday.
“Rather than be strategic, this Fed is overly data dependent, and has turned into a play-by-play commentator,” El-Erian told CNBC’s Steve Sedgwick at the Ambrosetti Spring Forum in Italy.
El-Erian’s comments follow a recent chorus of Fed policymakers who have begun speaking conservatively about rate cuts.

Mohamed Aly El-Erian, chief economic advisor for Allianz SE. 
Bloomberg | Getty Images

The U.S. Federal Reserve has become too data dependent and has lost sight of its overall strategy, Mohamed El-Erian, chief economic advisor at Allianz, said Friday.
The economist told CNBC that a longer-term, more strategic outlook could see policymakers settle on a new inflation target of closer to 3%.

“Rather than be strategic, this Fed is overly data dependent, and has turned into a play-by-play commentator,” El-Erian told CNBC’s Steve Sedgwick at the Ambrosetti Spring Forum in Italy.
“That’s not the role of the Fed,” he continued. “The Fed should be strategic, the Fed should provide a strategic anchor, a stabilizer.”
“The mistake that they may make is they’ll end up this time being too tight,” he said.
The Federal Reserve did not immediately respond to a CNBC request for comment.

El-Erian’s comments follow a recent chorus of Fed policymakers who have begun speaking conservatively about rate cuts.

Fed Chair Jerome Powell said Wednesday that the bank would need further evidence to assess the current state of inflation, casting doubt on expectations for a June interest rate cut.
A day later, Minneapolis Fed President Neel Kashkari said he wondered if the central bank should cut rates at all if inflation remained sticky, causing markets to tumble.
El-Erian said the comments were an example of the Fed “overreacting to data,” and said that it should take a more holistic view of the economy.
However, he noted that policymakers’ hawkish approach could be an indication that they are considering the possibility of a new normal inflation target.

“The way you discuss it politely is you don’t say ‘let’s change the inflation target,’ you say ‘let’s get to 2% somewhere in the future. Let’s have a trajectory,'” El-Erian said. “It may well prove that the economy is stable nearer to 3%. I don’t think that’s going to de-anchor inflation expectations,” he added.
In an effort to drag inflation back down toward its target, the Fed has hiked interest rates 11 times in total over the last few years to a target range of 5.25%-5.5% — the highest level for more than 22 years.
The Fed’s goal has proven especially challenging given the high volumes of U.S. banking reserves at present, according to Richard Koo, chief economist at the Nomura Research Institute.
In past monetary tightening cycles, central banks have squeezed bank reserves as an additional means of lowering inflation. But with current U.S. reserves around 1,700 larger than before the 2008 Lehman crisis, according to Koo, that path was unviable.
“If you tried to tighten with this tool, you have to remove the $3.2 trillion first, before you will have any grip on the situation. And of course, you cannot do that overnight,” Koo said at the same event Thursday.
“So much is on interest rates, and interest rates will have to go much higher to get the same effect it did have before excess reserves were at this magnitude,” he added. More

The March nonfarm payrolls count likely will show hiring continuing at a solid pace, though some weakening foundations of the labor market could take greater focus.
Markets will be looking at the composition of the report, signs of inflation and the possibility of more revisions that have lowered initial counts.
The Labor Department’s Bureau of Labor Statistics will release the report Friday at 8:30 a.m. ET.

A person works on a Bowlus recreational vehicle at Bowlus’ factory in Oxnard, California, Feb. 23, 2024.
Timothy Aeppel | Reuters

The March nonfarm payrolls count likely will indicate hiring continuing at a solid pace, though some weakening foundations of the labor market could take greater focus when the Labor Department releases its key report Friday morning.
Job growth is expected to come in at 200,000 for the period, according to the Dow Jones consensus forecast. If that’s correct, it will mark a slowdown from February’s initially reported 275,000 but is still a strong pace by historical terms.

Yet a funny thing has been happening with the jobs reports recently: Initially strong numbers have tended to be lowered in subsequent estimates, raising questions about whether the jobs situation is as positive as it looks.
That will be just one of several key areas in focus when the report is released at 8:30 a.m. ET.

Strong, but how strong?

February’s release raised eyebrows with a gain that trounced the Wall Street outlook for 198,000 new jobs. Also gaining notice, though, were revisions to the prior two months that reduced December’s count by 43,000 to 290,000 and January’s by a whopping 124,000 to 229,000.
For all of 2023, revisions took 520,000 off the initial estimates — there are three readings in total — countering a historical trend in which the final numbers are generally higher than the first readings.

The trend “makes me wonder about the credibility of the first number,” said Dan North, senior economist at Allianz Trade Americas. “So I’ll be looking for the revisions from the prior month to see if they’re going to be knocked down, and most likely they will be. That’s why if you get a big number, take it with a grain of salt.”

There is some anticipation on Wall Street of an upside surprise: Goldman Sachs raised its initial forecast to 240,000, an increase of 25,000, following strong private payroll data from ADP showing a gain of 184,000 on the month, and other indicators.

Drivers of growth

Along with numbers, composition is important, namely where the growth is coming from and whether there are any cracks in the employment armor. The job market’s resilience has confounded many economists who spent the past two years searching for a jobs-led recession that never happened.
“Firms are seeing strong demand. They’ve dramatically increased their productivity, and so they’re hiring for different kinds of jobs,” said Luke Tilley, chief economist at Wilmington Trust. “That has enabled them to deal with the high-rate environment.”
Still, there are areas of concern.
Household employment, which counts individual workers rather than total jobs and is used to calculate the unemployment rate, has fallen by nearly 1 million since November. The survey is more volatile and uses a much smaller sample than the establishment count that yields the headline payrolls growth total. But there’s no obvious reason for the weakness, though some economists speculate it could involve the surge in illegal immigration over the past few years.
Also, full-time employment has declined slightly over the past year, while the rolls of part-time workers have swelled by more than 900,000. There also has been a sharp decline in temporary workers, a classic sign of a slowdown.

Inflation signals

Federal Reserve officials will watch all those factors for signs of inflation pressures. Stocks have been under pressure this week as investors worry about the direction of monetary policy.
Average hourly earnings are projected to have increased 0.3% in March, which would be a jump from 0.1% in February, though the estimate for the annual gain is 4.1%, or 0.2 percentage point less.

If the consensus calls are correct, it’s unlikely to move the needle much for the Fed, which is expected to begin cutting interest rates gradually starting in June, according to futures market pricing tracked by the CME Group.
“Unless there is a wildly positive or outright tragic employment report, they’re going to stay on course,” North said. “They’ve been really clear recently pushing back on the market, saying we’re in no big hurry, inflation is not down to 2%.”
North said he expects the Fed to wait until July before it starts cutting rates — contrary to current market expectations.

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The monthly rise in consumer prices came out at 3.16%, led by education, communication, and hotels, restaurants and cafes, which saw month-on-month rises of 13%, 5.6% and 3.9%, respectively.
On an annual basis, education again saw the highest cost inflation at 104% year on year, followed by hotels, restaurants and cafes at 95% and health at 80%.

A money changer holds Turkish lira and U.S. dollar banknotes at a currency exchange office in Ankara, Turkey December 16, 2021.
Cagla Gurdogan | Reuters

Turkey’s annual inflation rose to 68.5% for the month of March, an increase on February’s 67.1% inflation read, according to the Turkish Statistical Institute’s report released Wednesday.
The monthly rise in consumer prices came out at 3.16%, led by education, communication, and hotels, restaurants and cafes, which saw month-on-month rises of 13%, 5.6%, and 3.9%, respectively.

On an annual basis, education again saw the highest cost inflation at 104% year on year, followed by hotels, restaurants and cafes at 95% and health at 80%.
Turkey has launched a concerted effort to tackle soaring inflation with interest rate hikes, most recently raising the country’s key rate from 45% to 50% in late March.

Much of the inflation in recent months stems from a significant increase to the minimum wage that Turkey’s government mandated for 2024. The minimum wage for the year rose to 17,002 Turkish lira (around $530) per month in January, a 100% hike from the same period a year prior.
Economists expect further rate increases from the central bank will be necessary.
While the March inflation count represents “the smallest monthly increase in three months and suggests that the impact of the large minimum wage hike in January may now have largely passed, it is still far from consistent with the single-digit inflation that policymakers are trying to achieve,” Nicholas Farr, an emerging Europe economist at London-based Capital Economics, wrote in an analyst note Wednesday.

“The latest inflation figures do little to change our view that further monetary tightening lies in store and that a more concerted effort to tighten fiscal policy will be needed too,” he said.
Turkey’s central bank implemented eight consecutive interest rate hikes from June 2023 to January 2024, totaling a cumulative 3,650 basis points. It paused in February, suggesting the tightening cycle was over, before raising rates again in March, citing “deterioration in the inflation outlook” and saying that “tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed.”

Supporters of Istanbul Mayor Ekrem Imamoglu, mayoral candidate of the main opposition Republican People’s Party (CHP), celebrate following the early results in front of the Istanbul Metropolitan Municipality (IBB) in Istanbul, Turkey March 31, 2024. 
Umit Bektas | Reuters

Analysts note that with Turkey’s local elections, which took place on March 31, out of the way, pushing ahead with tighter monetary policy will likely be easier. The vote for municipal leaders across the country, which took place Sunday, saw Turkey’s opposition party deal a historic blow to Turkish President Recep Tayyip Erdogan’s ruling AK Party, winning the country’s five largest cities and several rural areas as well.
Economic pain and steep living cost increases for ordinary Turks over the last several years played a major role in the results, political observers said.
Exercising tight control over the central bank, Erdogan for the last few years refused to raise rates, calling them “the mother of all evil” and insisting, against economic orthodoxy, that lowering rates was the way to cool inflation. This was despite declining foreign currency reserves and a rapidly weakening Turkish lira, which has lost some 82% of its value against the dollar in the last five years.
Only after appointing a new finance and central bank team in May 2023 did the central bank stage a turnaround in policy, suggesting greater independence at the bank from the executive branch of Turkey’s government. But the political loss for Erdogan’s party in the March local elections could make his future moves more unpredictable, some analysts say.
“The outcome of the vote fuels political uncertainty and raises doubts about whether President Recep Erdogan will stick to unpopular orthodox policies,” Bartosz Sawicki, a market analyst at fintech firm Conotoxia, wrote in a note. But, he added, “With no elections until 2028, another overhaul leading to the return of extra-loose monetary policy seems unlikely.” More