Investors cheered the jobs news on Friday morning as March employment activity bounced back from a sour February performance, according to the monthly federal report. The news that employers created 196,000 net new jobs in March beat expectations and gives markets that had wavered a fresh indicator that job creation hasn’t lost all momentum.
The strong showing contrasts with just 20,000 net new jobs in February, although that number was revised up to 33,000 on Friday, which is still far below expectations. Those disappointing February results prompted some analysts to wonder if the now decade-long expansion in the labor markets was drawing to a close. March results suggest that’s not true just yet.
The national unemployment rates remains at 3.8%, on par with expectations. The good news in March was possible thanks to 49,000 new workers in health care, professional and technical services gains of 34,000 and restaurants and food service adding 27,000. Construction rose by 16,000 jobs, but manufacturing saw 6,000 jobs lost in March.
Wage growth was less impressive. Wages increased just 0.14% in March and is now up 3.2% over the last 12 months. Analysts expected year-over-year wage growth to hit 3.4%.
The results released Friday give new hope for continued economic growth. The Atlanta Fed is now projecting first quarter GDP to rise 2.1%, after much smaller estimates a few weeks ago.
Fed officials continue to keep a close eye on jobs as they weigh monetary policy moves. The Fed has paused its rate hikes as it awaits more economic data. Some had speculated after the disappointing jobs report in February that the Fed may be forced to reduce rates later this year. However, the good report Friday likely puts those concerns on hold. Investors will now watch other key indicators to see how long the Fed holds rates steady. No changes are predicted in the coming months, unless economic data shifts drastically.
10 Year Treasury yields leveled off around 2.5% in early trading Friday. Treasury’s traded off this week after bottoming out a 2.35% last Friday, ending March on a downward trend that sent the mortgage market firmly into refinance territory. While Friday’s news will likely calm the rally in bonds in the very near term, don’t expect a real rise in rates anytime soon. The refinance opportunity for many mortgage borrowers that purchased homes last year remains in place while low rates should continue to push the spring buying season into a renewed frenzy.
China trade deal?
Markets are also digesting new developments in the ongoing trade war with China. This week, a delegation from China met with President Trump and discussed a deal that could end the tit-for-tat tariffs that have roiled international trade between the two largest economies.
Trump said he expected to know whether a deal will happen over the next four weeks. A summit between Trump and Chinese President Xi Jinping has been floated but is not likely until a trade agreement has been reached. The two leaders have reportedly made progress in the ongoing talks about a comprehensive trade deal. However, lingering differences on tariffs, technology and other key point of tension still must be resolved.
The stakes are high, and investors are watching closely for developments. Over the last year, the two nations have introduced hundreds of billions of dollars in new tariffs on each other. The results have been problematic for growth in both countries and has spilled over into global markets. A solid trade deal could bring fresh momentum to economic growth, but continued impasse may eventually contribute to global recession.
Housing continues to slow
Home price gains continue to slow down as the overall housing market cool down persists. The S&P CoreLogic Case-Shiller 20-City Composite Home Price Index released this week fell 0.22% month over month in January and increased 3.58% year-over-year, below expectations of 3.8%. Home price appreciation also decelerated for the 10th consecutive month, hitting its lowest level since September 2012. The widespread and accelerating slowdown in housing has caused the S&P CoreLogic Case-Shiller US National Home Price Index to drop below 5% to 4.26% last month.
According to the Case-Shiller report, 14 of the 20 cities that make up the 20-City composite index saw home prices decline month over month. Seattle, Portland, San Diego, Chicago, Minneapolis, Cleveland and Detroit have all declined for 4 consecutive months or more. Denver, Washington and San Francisco have each declined in 5 of the last 6 months. Meanwhile, Dallas was the only city to reach a new all time high.
The slowdown in home prices is attributed to affordability concerns choking off new buyers into the marketplace. Rising property taxes in cities with more pronounced price declines is also a concern.
Still, home prices broadly remain below the highs seen in the 2007 housing crisis, and many cities with lower cost of living and population growth are still seeing home prices increase, even if at a more sustainable pace. Market watchers will be curious to see how lower interest rates, which can help with affordability, will affect the housing market in the spring and summer buying season ahead.