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US economic strength on the rise

Wednesday’s US consumer inflation figures pose a significant test for an economy that appears to have hit bottom at the close of 2023 and is now gaining momentum, despite interest rates being at their highest in years.

Friday’s jobs figures shattered many preconceptions about the labor market: a surprising addition of 303,000 new jobs in March, revisions to January and February data, a decrease in the unemployment rate to 3.8% from February’s 3.9%, and although wage growth slowed, it still outpaced inflation. Confidence is rising as more individuals join the workforce, all amidst 11 rate hikes from the Fed.

The unexpected job growth exceeded market forecasts by 50%, marking the largest increase in ten months. Unemployment has remained below 4% for 26 consecutive months. Revised figures for January and February added a net 22,000 new jobs, affirming the ongoing trend of robust job growth.

Despite this positive outlook, concerns linger over a 9,000 increase in first-time unemployment benefits, reaching the highest level in nine weeks. Surprisingly, Wall Street shares rose following the data release, despite a surge in bond yields.

Should the robust job data trigger inflation concerns at the Federal Reserve? The answer awaits Wednesday’s CPI release, which is forecasted to show a slight improvement at both headline and core levels.

Economists remain puzzled by the strong job report coinciding with moderate wage growth and an expanding labor force. Some dub it the “goldilocks economy”—a situation that spells trouble for bears and promises prosperity for workers, inflation-wary central bankers, investors, and businesses alike.

The three-month average of job growth stands at 276,000, the highest in a year, continuing a streak of 39 consecutive months of job additions. A surge in the labor force, with 469,000 more Americans seeking employment, underscores these trends.

Average hourly earnings rose by 0.3%, maintaining a 4.1% growth over the past year. Fed Chair Jay Powell acknowledges the sustained job gains of 2023 and the corresponding slowdown in inflation.

While challenges remain, including a significant number of workers holding multiple jobs, the labor force remains robust, with over 166.6 million people employed last month.

Nick Bunker, Indeed Hiring Lab’s economic research director for North America, suggests that the strength seen in March’s job numbers stems from more sustainable sources than previous gains. This strength, particularly evident in the employment-population ratio and labor force participation, indicates that demand for workers is balanced with supply.

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