Powell Said the Labor Market is Better Balanced Between Supply and Demand

• Initial claims for unemployment insurance edged down by 2,000 to 210,000 in the week ending March 23. The four-week moving average edged down by 1,000 to 211,000. 

• Continuing claims rose by 24,000 to 1.807 million in the week ending March 16 and the four-week moving average rose by 4,000 to 1.803 million.

Initial Unemployment Insurance (UI) claims edged down by 2,000 to 210,000 in the week ending March 23 from an upward revised 212,000 in the previous week (was 210,000). The four-week moving average of claims, which smooths out some of the weekly volatility in this data set, edged down by 1,000 to 211,000 from an upward revised 212,000 (was 211,000). UI Claims remain low by historical standards and have remained in a very narrow range for the past eight weeks centered on 212,00.

Continuing claims rose by 24,000 to 1.819 million in the week ending March 16 from a downward revised 1.795 million in the previous week (was 1.807 million). The four-week moving average of continuing claims, which smooths out some of the weekly volatility in this data set, rose by 4,000 to 1.803 million from downward revised 1.799 million in previous week (was 1.802 million).

While UI Claims are still at healthy levels in an historical context, the labor market is becoming better balanced between demand for and supply of workers, which will help moderate upward wages pressures, especially as legal immigration has risen by over 1 million in each of the past two years. This is a theme that will please the Federal Reserve and pave the way or rate cuts starting this summer.

Last week, Fed Chairman Powell specifically referred to higher labor force growth with a strong rise in legal immigrants, a rise in prime age (25-55 years old) participation rate and stronger worker productivity gains as positive labor supply forces that helped to slow worker compensation growth and price inflation in 2023. This is equivalent of the labor market hitting the “trifecta” (my word, not Powell’s). Powell said continuation of that favorable labor market trend of “a better balance between labor demand and supply” in 2024 would be welcome and add to the greater confidence the FOMC members need to start cutting the Fed funds rate.

Looking ahead to the March jobs report released on April 5, we expect a payroll job increase of 200K to 225K and the unemployment rate to edge down to 3.8%, reflecting a large rebound in the household measure of jobs in excess of a rise in the labor force. Average hourly wages should rise by 0.3% keeping them up 4.3% from a year ago. This would continue a long string of solid employment reports which should be reflected in strong gains in personal income, retail sales, industrial production and factory orders in March, capping off the first quarter when we estimate real GDP grew by close to 2%.    

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