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The Sizzling U.S. Jobs Market

Erik Norland, CME Group

AT A GLANCE:

  • The state of the labor market, wages and inflation has fueled a dramatic change in investors’ outlook for Fed rates
  • The U.S. economy has recovered more than 90% of the 22 million jobs lost during the pandemic

Will the booming U.S. employment market fuel higher wages, higher inflation and higher interest rates? 

The Department of Labor’s March establishment survey, based on data gathered from businesses, showed that American employers added back nearly half a million jobs and are now just 1.5 million jobs below peak employment.

The separate household survey showed that the U.S. added back nearly 750,000 jobs in March and that the unemployment rate fell from 3.8% to 3.6%, close to a 50-year low.  For the first week of April, jobless claims came in at just 166,000, the lowest level since 1968 when the job market was less than half its current size.


And the JOLTS survey shows that employers are looking to add 11.7 million new workers.  But how are they going find 11.7 million new workers when the economy is within 1.5 million jobs of being at full employment?  The answer might be to entice workers with higher wages.  Average hourly earnings rose by 5.6% in the year ending in March, the fastest rate in decades, and wages might grow even more quickly as employers compete over scarce workers.  But even those strong wage gains are falling short of inflation which is running at close to 8%. 

The state of the labor market, wages and inflation has fueled a dramatic change in investors’ outlook for Fed rates.  As recently as six months ago, traders didn’t price even one Fed rate hike during the coming year, according to the CME FedWatch Tool.  Now the tool suggests traders expect rate hikes in increments of 50 bps, and that the Fed might raise rates to over 3% in 2023. 


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