After months of a remarkably strong US labor market and economy, everything seems to be slowing down.
The latest high-frequency data shows that the consumer could be running out of steam, hiring activity is moderating, business activity is softening, interest-rate sensitive sectors are pulling back and housing is suffering.
The question is whether Friday’s monthly jobs report, easily the most anticipated piece of data out this week, will confirm the trend.
The unflinching resilience of the US labor market is one of the greatest sources of tension in today’s economy. Federal Reserve officials have said employment numbers and the pace of wage increases need to shift lower before “sticky” inflation can be overcome.
Over the past year, the Fed has raised interest rates from nearly zero to a range of 4.75% to 5% to cool the economy. But jobs numbers have blown past expectations for the past 11 months. Unemployment currently sits near historic lows at 3.6%.
A slowdown in the official US jobs report Friday could signal an economic sea change.
Slowly cooling: “Recent labor market evidence, along with our conversations with business executives, indicate that hiring efforts have been scaled back notably across numerous sectors,” wrote Gregory Daco, chief economist at EY, in a note on Wednesday. That could mean payrolls for March come in well below the 240,000-consensus estimate, he added.
More jobs data released this week shows that hiring may be slowing. ADP estimated that private sector employment rose by 145,000 jobs in March, below the 200,000 consensus forecast; and ADP’s measure of year-over-year wage growth slowed to 6.9% from 7.2%.
The February JOLTS Report, meanwhile, showed that job openings dropped 632,000 to 9.93 million in February, from 10.56 million in January. That’s the lowest level of job openings since May 2021.
The strength of the American consumer — which Bank of America CEO Brian Moynihan has previously said was single-handedly propping up the US economy — also appears to be waning.
Spending momentum cooled in February, and analysts are expecting more weakness in March.
The US Treasury publishes daily data for tax refunds, and “the level of tax refunds to households tells us something about how much support there is to consumer spending,” said Torsten Slok, chief economist at Apollo Global Management. Tax refunds in recent weeks have been coming in at a lower rate than in the previous two years.
“Credit conditions are tightening and the recent banking sector stress will only further exacerbate the impact, leading to slower spending on big-ticket items and services,” wrote Daco.
Existing home sales, meanwhile, have plunged more than 20% over the past year and the latest ISM manufacturing survey shows that business investment is slowing. Commercial real estate is in trouble and while major US stock indexes are up this year, there’s underlying weakness in market fundamentals.
Wrapping it up: “The economy is unwell. It’s not the flu, but it is a throat ache. And it’s unlikely to get better in the coming months,” wrote Daco.
Friday’s job report will give us a better idea of how sick the economy actually is.
