March jobs data points to ongoing ‘resistance from wages’

March’s jobs data reported an astounding 303,000 jobs added to the US economy, topping estimates of 214,000, while the unemployment rate ticked down to 3.8%. The Conference Board Chief Economist Dana Peterson and Invesco Global Market Strategist Brian Levitt join Yahoo Finance this morning to discuss the general consensus on the job print’s impact on the Federal Reserve’s interest rate policy, taking a closer look at wage growth data.

Levitt characterizes the jobs print as a typical “Goldilocks report” while viewing it as “all favorable news” here for the US economy.

“I’m certainly concerned about wages. I mean, wages are still well above the average we saw before the pre-pandemic, before the pandemic. Before that it was roughly just under 3%, now we’re still at 4%,” Peterson explains. “And so that’s going to place upward pressure on overall consumer inflation. The goods news is that housing inflation is slowing, but we’re still getting that resistance from wages.”

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

Editor’s note: This article was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: As we try and make some sense of some of the revisions that we got as well as this hot headline print– Brian, I want to go to you first. You know, as we think about this kind of market reaction that we’re also seeing here too, What do you think investors are trying to get ahead of?

BRIAN LEVITT: It’s not a bad report. I mean, we continue to show strength in the jobs data, which is good, and we didn’t see wages climb on a year-over-year basis. I mean, they climbed 4.1%, but the rate of change was good. And so, you know, it’s a pretty Goldilocks report. And I think everyone’s been so focused on how many rate cuts we’re going to get. Remember, rate cuts would have been aligned with some softness or some weakness in the economy. I would prefer a strong economic backdrop and a Fed that goes about this slowly. So I view this as all favorable news here.

Story continues

SEANA SMITH: What do you think, Dana? Do you agree?

DANA PETERSON: Well, I’m certainly concerned about wages. I mean, wages are still well above the average we saw before the pre-pandemic– before the pandemic. Before that, it was roughly just under 3%, now we’re still at 4%. And so that’s going to place upward pressure on overall consumer inflation. The good news is that housing inflation is slowing, but we’re still getting that resistance from wages. And certainly when we look at the payrolls, yes, you did have the usual suspects like government, leisure and hospitality, non-res construction, and also health care driving a lot of the gains, but we saw some broadening to other sectors.

So the Fed is going to be watching this to see if the labor market gets hotter and certainly causes them to pause or at least wait until they need to see more improvement in inflation before they start cutting rates.

SEANA SMITH: Dana, when you see wage numbers like this, like you were just suggesting there, still remain pretty hot overall when you compare it to those pre-pandemic levels, What does that tell us then about the fight to tame inflation and the impact that this is ultimately going to have on inflation in the short-term?

DANA PETERSON: Well, we have to ask ourselves, why are wages still elevated, and a lot of that is because you have labor shortages in some of these key industries, especially if you have to physically show up to work. That’s probably not going to be solved overnight. And so the Fed is really going to have to resist this and hope that we don’t see a redux in goods and energy price inflation, which could be a risk certainly given the fact that we’re seeing shortages in energy and we’re having disease and such affecting food prices. So the Fed’s got a tough few months ahead of them in terms of feeling confident about beginning interest rate cuts.

BRAD SMITH: I guess, Brian, Is the wage front so extreme or so significant that it would throw off some of the expense profiles of companies that we track on a day in, day out basis and try to see how that might impact their margins as well and the trade that a lot of investors have to think about too?

BRIAN LEVITT: No, I don’t think so. I mean, remember, companies are generating profits nominally. And so we’re still in a good nominal growth backdrop. And, again, a strong economy will be good for business. Yeah, we may see, you know, expenses up a bit, but we’re also seeing very good revenue reports. And if you– you know, these businesses have done a reasonably good job of getting back the workers, we have to remember why this all happened. This all happened because businesses cut workers and slashed inventory at the worst time four years ago. And so we’re still coming through that. They’re bringing back workers. The inventory levels are better.

I don’t think we’re moving back into a period where we’re at price instability, wages are up, corporate earnings are hit by that. I don’t think that’s what this is what we’re talking about. To me, this is a good backdrop of strong growth and prices that may be a little bit elevated, but I wouldn’t call it price instability.