(Bloomberg) — U.S. job growth likely slowed last month after a blistering pace in January, while the unemployment rate likely remained at a 53-year low, illustrating a labor market that has proved largely impervious to the massive rate hikes from the Federal Reserve.
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The report follows testimony from Fed Chairman Jerome Powell on Tuesday and Wednesday as he delivers semiannual monetary policy report to lawmakers. His comments may shed light on whether investors agree with the central bank’s position on how high interest rates will need to be raised to reduce inflation.
Payrolls rose by 215,000 in February, according to the median forecast in a Bloomberg survey. At the start of the year, U.S. employers added more than half a million workers and the unemployment rate fell to 3.4% — results that beat expectations for a brief pause in the Fed’s tightening campaign.
Friday’s jobs report will be the last before the Fed meets on March 21-22 to consider another 25 basis point rate hike or possibly toughen up in light of recent data showing stubborn inflation. Officials will also have consumer price index and retail sales data from February on hand before they meet.
“If the data shows that the renewed acceleration at the start of the year was short-lived, the Fed’s story would become much simpler,” economists at Bank of America Corp., led by Michael Gapen, said in a report. “A little bit of bad news would be good news for the Fed.”
Resilient demand for labor has boosted wage growth, which in turn has supported consumer spending and increased employer costs. That implies the risk of inflation staying high for longer, and helps explain why swap markets are now pricing in a peak policy rate of 5.5% in September. The reference rate is currently in a range of 4.5% to 4.75%.
What Bloomberg Economics says:
“But our analysis suggests that many of the high-profile layoffs that have been announced – in the technology sector, for example – do not translate into job losses until about two months later. If true, we should expect the first jobless claims to rise in March.
The March jobs reports – which will not be released until after the next FOMC meeting – are likely to show clearer signs that the labor market is weakening. Unfortunately, the Fed can’t wait for the fog to lift to make policy decisions.”
—Anna Wong, Stuart Paul, and Eliza Winger, economists. Click here for a full analysis
Powell will likely be asked by lawmakers if a half percentage point step is being considered. The Fed raised rates by a quarter point on February 1, representing a half-point hike in December after four consecutive 75 basis point moves.
Elsewhere, Canada’s central bank could halt rate hikes, while Australia’s is likely to rise again, and the Bank of Japan’s decision will mark the end of an era.
Click here for what happened last week and below is our recap of what’s to come in the global economy.
In Canada, Governor Tiff Macklem will become the first Group of Seven central banker to take his foot off the monetary brake on Wednesday.
The Bank of Canada is expected to hold rates steady at 4.5% in its first decision since officials declared a conditional pause in January. Macklem said it would take an “accumulation of evidence” that the economy was not developing as predicted for policymakers to step from the sidelines, and so far that hasn’t panned out.
Canada’s inflation slowed to 5.9% at the start of the year from a peak of 8.1%, and output leveled off in the fourth quarter. The job market remains tight, however, with a new set of jobs data on Friday following two consecutive blowout reports.
China set a modest economic growth target of around 5% for the year, with the country’s top leaders shying away from any major stimulus to fuel a recovery, still weighed down by weak business confidence and an uncertain real estate market.
Recent data shows that the recovery of the economy is gaining momentum, with trade and inflation data expected later this week.
Haruhiko Kuroda will make his final policy decision on Friday as governor of the Bank of Japan as a momentous ten-year tenure of unprecedented stimulus comes to an end.
While he has one last chance to surprise the markets with a move that could help his likely successor Kazuo Ueda, the consensus is that Kuroda will end with barely a whimper as a stint that began with a bazooka bang of buying bonds ends with a simple stand. -pat.
The week opens with inflation data out of South Korea that will test how seriously Bank of Korea Governor Rhee Chang-yong should consider the possibility of returning to rate hikes after pausing the tightening cycle last month.
The Reserve Bank of Australia meets on Tuesday and is expected to push ahead with another quarter of a percentage rate hike, even after recent data showed slower-than-expected growth and a cooling in inflation. Pressured Governor Philip Lowe will have the chance to explain the decision the next day amid growing fears over Australia’s cost of living.
Europe, Middle East, Africa
After a week in which eurozone underlying inflation hit a new all-time high, the coming days provide the last chance for policymakers to comment ahead of a pre-decision period ahead of their March 16 meeting. Investors are betting that the deposit rate of the European Central Bank will rise to as much as 4% in the coming months.
In an interview published on the ECB’s website on Sunday, President Christine Lagarde said a half-point rate hike this month is “very, very likely.”
Lagarde will speak again this week, as will chief economist Philip Lane and board member Fabio Panetta.
It’s been a quieter than usual week for Eurozone data. German factory orders and industrial production, on Tuesday and Wednesday respectively, will be among the highlights.
In the UK, Friday’s data will show whether the economy started to expand in 2023, keeping a widely predicted recession at bay for longer. According to economists’ median forecast, gross domestic product is likely to have increased by 0.1% in January from the previous month.
Consumer price data elsewhere in Europe will attract investors’ attention. As of Monday, Swiss statistics are likely to show lower inflation in February, with economists expecting an outcome of 3%. Price growth in the Czech Republic and Norway, to be announced Friday, may also have weakened.
Hungary, which had the highest inflation rate in the European Union in January, is likely to have had a similar result of more than 25% last month. That release comes Wednesday.
Polish policymakers are likely to keep interest rates at 6.75% the same day, while their Serbian counterparts may raise borrowing costs again on Thursday.
In Sweden, the monthly GDP indicator for January can indicate whether the largest Scandinavian economy has started the year with another contraction. With a looming recession and collapsing housing market, investors can focus on Tuesday for speeches from officials including Riksbank Governor Erik Thedeen. Thedeen said Saturday that curbing inflation remains the priority.
Further east, Russia reports car sales on Monday, which are expected to continue to fall sharply amid the departure of Western manufacturers. Monthly inflation data on Friday will be watched for signs of increasing price pressures.
In South Africa, data from Tuesday is likely to show the economy contracted in the fourth quarter as record power cuts stifled production and discouraged investment. Figures from last month showed that output from mining and manufacturing, which make up about one-fifth of total GDP, fell in the December quarter.
Egyptian inflation expected on Thursday is likely to accelerate again after food prices hit an all-time high and the effects of the latest currency devaluation sink in.
Data from Thursday expects Saudi Arabia’s non-oil sector to grow at its strongest pace in more than a year, and the kingdom posted the fastest overall growth of any major global economy late last year.
In Argentina, construction activity and industrial production could both continue their downward trend in January, due in no small part to trade and currency controls hampering material imports.
After a surprise decision to keep the policy rate unchanged at 7.75% in February after 18 consecutive hikes, Peru’s central bank is taking it up at this week’s policy meeting. Nationwide protests that have weighed on economic activity have also put pressure on inflation, which is currently near its June 2022 peak of 8.81%.
The last of the region’s five largest economies are releasing their February consumer price reports. While Chile, Mexico and Brazil all appear to be on the downside of peak inflation, many analysts expect above-average numbers to complicate the trio in 2025.
A third month of slowdown in Chile could only push nominal interest rates back to 12%, while early estimates for Mexico show interest rates falling to around 7.7%, the first drop in three months and just 100 basis points below the highest point of the cycle.
And while Brazil’s central bank has deducted 600 basis points from the numbers, inflation is now stalling just below 6% – about where local analysts see it at the end of the year.
–With assistance from Gregory L. White, Robert Jameson, Stephen Wicary, Malcolm Scott, and Andrea Dudik.
(Updates with the China Congress in the Asia section, Lagarde in the EMEA section.)
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