Economic Data Tracker –
More jobs, compelling a Fed hike

Trend watch and what’s new this week

With winter storms in the west, some of the activity-based data ebbed on a week-over-week basis (slides 5 and 6), including hotel occupancy and air passenger counts, though the weekly counts have remained above 15.5 million.

Dining reservations have been especially strong in recent weeks, as the 7-day average surged to 11.7%, hovering near the highest post-pandemic levels. The Back-to-Office Index has also stayed above 50 for just the third week since the pandemic.

More jobs in February, but cooling is evident

U.S. payrolls in February rose by 311,000, well-ahead of the consensus of 225,000. This was coupled with downward revisions to the prior two months. The six-month average slipped to 336,300.

Yet, there were several clear signs of cooling upon digging a little deeper. On slide 7, we show the unemployment rate, which rose to 3.6%. Additionally, there was weakness on the industry level in February, with three industries shedding workers and one unchanged; nearly half of the 10 major industries lost or maintained workers last month.

The monthly pace of average hourly earnings slipped to a 12-month low (slide 8). But the annual pace ticked higher.

Supplementary employment data mixed, too

On slide 9, the number of job openings remain at nearly 11 million, hovering near the all-time high. Within the same report, the quit rate for retailers continued to climb and hasn’t fallen in nine months.

On slide 10, we also revisited temporary staffing. Staffing levels have declined for four consecutive weeks, though remain above the average during 2021. 

Our take

Aside from the headline job growth, the February jobs report was rather mixed. Again, it’s important to note that the jobs report is backward looking. Still, the trend continues to show that while the labor market is cooling from very strong levels, it remains solid. Which is to say, it’s stronger than the Fed would like to see given the ongoing inflation struggle.

This mixed employment view is also corroborated by several other recent employment reports, including JOLTS and productivity, which show a plethora of job openings and sagging output, respectively. Even the weekly initial jobless claims, which are hovering near the lowest level since 1968, jumped to the highest level this year in the most recent week.

Additionally, February had a sizable drop in the number of part-time workers, -227,000, the largest in 14 months. That jives with the staffing index for temporary workers, which has declined for four consecutive weeks (slide 10).

Ultimately, we believe this report supports the idea that the Fed will stay the course, hiking rates by a quarter point at its March 22 meeting. That said, a half-point move will ultimately hinge on the February inflation data, set to be released next week. Accordingly, there is elevated risk that the Fed may need to take the Fed funds target above 5.5% during this cycle.

Nonetheless, market expectations for the Fed funds target have reset higher since last month, now anticipating rates will peak near 5.25% in mid-2023 and fall to about 5% by year-end (up from 4.5% a month ago). While there is a healthy debate as to how high the Fed hikes rates during this cycle, multiple rate cuts in 2023 are becoming less likely in our view.

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