In the recent Jerome Powell, Chair of the Federal Reserve testimony, the US February employment report was a major point of interest. Powell mentioned three things that he would refer to, and one of them was employment. The report highlighted the differentiation between quantitative and qualitative indicators, which caused a fluctuation in the probability of a 50bp Federal Open Market Committee (FOMC) hike in March. After the release of the report, the probability of a hike fell below 30%, but it surged to 78.6% as of Wednesday local time.
The number of new non-agricultural jobs, a quantitative indicator, exceeded expectations by increasing by 311,000. However, the market reacted more sensitively to qualitative indicators such as the unemployment rate, which rose by 0.2% from the lowest level since May 1969, and the labor force participation rate, which improved by 0.1% to 62.5%, exceeding all expectations. The participation rate of the prime age group aged 25-54 recorded the highest level since January 2020. The average hourly wages showed a slowdown in the rate of increase compared to the previous month.
Looking at quantitative employment indicators by sector, the leisure/accommodation industry showed the largest increase of 105,000, while the information industry showed negative growth for three consecutive months. However, only the leisure/accommodation industry within the service industry did not achieve 100% recovery rate compared to the workforce who left during the pandemic and the workforce who re-entered later. This suggests an imbalance between supply and demand in certain industries.
Although wage growth in low-skilled jobs has been steeper than in high-skilled jobs since last year, wage growth in the leisure/accommodation and education/medical service industries has recently begun to show a slowing trend. Indeed's job openings index also decreased by 5.7% month-on-month as of March 3, which may lead to a decrease in job demand from companies and additional wage increase pressure relief.
In addition, the Case-Shiller Housing Price Index and the unemployment rate have an inverse correlation. Housing prices in cities in their 20s precede the US unemployment rate, and a significant rise in the unemployment rate followed 17 months later after peaking in July 2006. A shock to the tight job market from 4Q is expected to be inevitable, but the time difference can be narrowed in that more hikes were made in a shorter period of time.
