Jobless claims have been running much higher than believed, new Labor Department data revealed on Thursday. The shift, which reflects a change in seasonal adjustment methodology, bolsters the case that the job market is rolling over and that the Federal Reserve should hit the pause button on rate hikes. Yet the S&P 500 opened modestly lower amid rising recession fear.
Despite upward revisions to recent data on jobless claims, markets are still pricing in a decent chance (44% odds) of a Fed rate hike on May 3. That raises the stakes for the March jobs report, since April's employment data won't be reported until two days after the upcoming Fed meeting.
Friday's jobs report is expected to show that the U.S. economy added 240,000 new jobs, which would be right near a two-year low, but still too strong for the Federal Reserve. The unemployment rate is expected to hold at 3.6%, while average hourly wage growth is seen easing to 4.3% from a year ago.
Jobs Data Begins To Soften
The Labor Department reported that 228,000 people applied for unemployment benefits in the week through April 1, far above views for 201,000. Claims for the prior week were revised up by 48,000 to 246,000.
The four-week average of claims dipped -4,250 to 237,750. Yet that's still up about 25% since the start of October.
Other data this week also has supported the case that the economy is slowing down in a serious way and likely headed for a brush with recession.
Job openings tumbled by 632,000 in February, the Labor Department said, though the 9.9 million openings still remained far above pre-pandemic levels.
Payroll-processor ADP estimated that the private sector added 145,000 jobs last month, down from 261,000 in February and well below views
"Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down," said Nela Richardson, ADP's chief economist.
Fed Balancing Act: Jobs Report Vs. Banking Crisis
Fed chair Jerome Powell acknowledged in his March 22 news conference that the sudden emergence of a banking crisis last month has clearly tilted economic risks to the downside. Tighter bank credit for individuals and businesses mean that the Fed won't have to tighten policy as much as previously thought in order to rein in inflation.
Yet Powell said it was "guesswork" for the Fed to predict how much or how fast the banking crisis will weigh on the economy. In a speech last week, Richmond Fed President Tom Barkin said that policymakers will "need to be nimble," balancing the risk of higher inflation with the risk of further contagion in the banking system.
Is Banking Crisis Having An Effect?
The banking crisis erupted too late to have any impact on the March jobs report, which is based on mid-month employer and household surveys. However, some business surveys that extended through the end of March have begun to flash incremental softness.
The Institute for Supply Management's manufacturing survey index fell deeper into contractionary territory (below 50), dipping to 46.3 from 47.7. Plus, the new orders component that provides a window into future activity fell 2.7 points to 44.3.
The ISM services index, which signaled economic strength earlier in the year, fell 3.9 points to 51.2. The new orders gauge tumbled 10.4 points to 52.2.
While the consumer price index and retail sales will take center stage next week, the new monthly jobs report from the National Federation of Independent Business will be worth watching. The prior report showed that a seasonally adjusted 17% of small business owners plan to create jobs in the next three months, down two points from January and 15 points below the record high in August 2021.
The NFIB report, which economists say tends to lead actual hiring by a couple of months, is already signaling a slowdown. That's a data point worth watching, since small businesses depend on bank credit.
The Labor Department will report the March jobs report at 8:30 a.m. ET on Friday. U.S. stock markets will be closed in observance of Good Friday.
S&P 500 Reaction To Jobless Claims
The S&P 500 slipped 0.4% in early Thursday stock market action, following the jobless claims news. The 10-year Treasury yield was little changed after hitting a nearly seven-month low of 3.29% on Wednesday.
So far the S&P 500 and broader stock market rally has remained intact, even as diving Treasury yields raise alarm about the risk of recession or more financial turmoil.
Through Wednesday's close, the S&P 500 remains 14.35% above its Oct. 12 bear-market closing low, but 14.7% below its record closing high in January 2022.
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