Jobs Report Might Shift Thinking on Inflation and Yields
Economists were caught off guard by March’s strong labor market gains and might need to play catch-up on bond yield forecasts
By Spencer Jakab
Juuuuust a bit outside.
U.S. employers added 916,000 jobs in March or some 241,000 more than predicted by a Wall Street Journal survey of economists.
February’s gains were revised higher as well. It is the latest sign of a quickening recovery in the U.S. economy as Covid-19 cases fall and more Americans are vaccinated.
Those same economists’ forecasts indicate that fears of major-league pressure on wages and prices are overblown even as the economy’s pace quickens.
A glance at March’s government data would lead to the same conclusion with hourly wages declining slightly and employment in areas like retail and accommodations and food service still well below pre-pandemic levels.
The surveyed economists see the headline unemployment rate at 5%, the Consumer Price Index up by 2.5% year-over-year and the benchmark 10 year Treasury note yielding 1.78% by this December.
But the surprisingly quick pace of recovery could force them to rethink their calculations.
The survey week on which the March payrolls report was based came before Americans began to receive their latest stimulus checks and when tens of millions fewer vaccines had been administered than today.
A report on Thursday by the National Federation of Independent Business showed a record share of respondents with job openings and a one-year high in the share of businesses that were raising wages to attract workers.
That latter figure is still below what business owners reported immediately before the pandemic when the unemployment rate hovered near an all-time low of 3.5%.
Even so, there are so many other transitory price pressures from food and energy prices to logistics bottlenecks that workers might wield their improving bargaining power to keep their purchasing ability steady as labor slack disappears.
While a robust domestic recovery is great news for corporate profits, it might not be for stock prices if bond yields keep climbing—especially technology stocks, which have proven to be especially sensitive to yields recently.
Back in December when vaccine and stimulus plans were known, economists thought that the 10 year note’s yield would be 1.08% in June.
It jumped to 1.72% on Friday in response to the jobs report.
Some forecasters see it topping 2% this year for the first time since the summer of 2019.
That would be no yield of dreams for stock bulls.
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