Payroll Growth Continues to Beat Expectations, While Manufacturing Activity Ends 18-Month Slump

Key Takeaways:

• Nonfarm payroll employment increased by 303,000 in March, according to the Bureau of Labor Statistics (BLS). The household survey, which had been significantly weaker than the establishment survey in recent months, also showed robust job growth in March and a one-tenth decline in the unemployment rate to 3.8 percent. Wages increased 0.3 percent over the month and were up 4.1 percent compared to a year ago, the slowest year-over-year wage growth since June 2021.
• The Job Openings and Labor Turnover Survey (JOLTS) showed job openings were roughly flat at 8.8 million in February, according to the BLS. The quits rate was also flat at 2.2 percent, one-tenth below its pre-pandemic level. Layoffs and discharges rose to an 11-month high at 1.7 million, though this figure remains about 100,000 below the 2019 average.
• The ISM Manufacturing Index rose 2.5 points to 50.3 in March, its first time above the expansionary threshold of 50 since October 2022. Most major subcomponents were up with the new orders index rising 2.2 points to 51.4 and the production index jumping 6.2 points to 54.6, its highest level since June 2022. The non-seasonally adjusted prices paid index increased 3.3 points to 55.8, likely reflecting a rise in oil prices.
• The ISM Services Index declined 1.2 points to 51.4 in March, marking its second consecutive decline. However, much of the drop was due to improving supply chain conditions; the supplier deliveries index was down 3.5 points to 45.5, the lowest level on record, and the prices paid index declined 5.2 points to 53.4. The business activity index rose 0.2 points to 57.4, while the new orders index declined 1.7 points but remain at a still-solid 54.4.
• Light vehicle sales declined 1.9 percent to a seasonally adjusted annualized rate of 15.56 million in March, a pace roughly 1.5 million vehicle sales below the 2019 level, according to Autodata.
• The real goods U.S. trade deficit widened by $1.0 billion in February, according to the Census Bureau. Real exports jumped 2.1 percent, while the larger real imports category rose 1.7 percent.
• Private residential construction spending increased 0.7 percent in February, according to the Census Bureau. Spending on single-family construction was up 1.4 percent, while multifamily spending was down 0.2 percent. Spending on improvements rose 0.2 percent.

Forecast Impact:

Employment growth was well above consensus and our expectations of roughly 200,000 new jobs, likely leading to a near-term upward revision to our forecast. The improvement in the household survey in March, which showed 498,000 jobs added after declining for several months, helps ease some concerns that the establishment survey has been overstating recent job growth, though the cumulative divergence between the two surveys remains substantial. Still, we believe the ongoing strength in the labor market means the Fed is unlikely to be in a rush to begin cutting rates, likely keeping mortgage rates elevated above our current forecast.

Other economic indicators were also generally positive, with the ISM Manufacturing index pointing to a modest expansion in the industry for the first time in 18 months. The headline services index was less rosy, though the components more indicative of actual activity remained well above the expansionary threshold of 50. Additionally, while trade is set to be a drag on GDP in Q1, large improvements in both real imports and exports are solid signs for consumer demand. Ongoing weakness in auto sales, on the other hand, likely reflects higher interest rates weighing on demand for durable goods transactions. This dynamic is in line with our forecast for generally sub-trend growth in 2024 compared to the well-above trend rate in 2023.

Nathaniel Drake
Economic and Strategic Research Group
April 5, 2024

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.