Strong US employment numbers push back further market timing of first interest rate cut

But despite today's strong official report, the true underlying state of US labour demand remains far from certain.

By Stuart Cole | @Stuart Cole | 5 April 2024


Another strong employment report from the US, which read in conjunction with the stronger CPI data that has also been seen this year, has understandably seen the market push back further its expected timing of a first interest rate cut being delivered by the Fed, with a first full rate cut not now being seen until September.

The March payrolls number rose by 303k, substantially above the 214k figure expected and with a net revision of +22k. Within this figure, private payrolls grew by 232k and government payrolls by 71k, a figure that is significantly above the trend that has been seen recently and which in itself looks to be unsustainably high going forward. The markets have clearly been surprised by today’s report, judging from the reaction seen in both yields and the US dollar, although have taken on board the message presented and pushed back the expected timing of when a first interest rate cut might now be delivered. But the true picture of what lays ahead for the US labour market may yet turn out to be somewhat different.

Firstly, the risk of a substantial downwards revision to the March numbers remains very real, mirroring very much what happened in the February report. But secondly, and perhaps most importantly, is that other measures of the labour market are pointing in the opposite direction and indicating a slowdown in hiring over the summer. As we reported yesterday (, official measures such as the initial jobless claims numbers are painting a less rosy picture, while private sector surveys, such as the Challenger jobs report and the NFIB survey, are presenting very different outlooks. The Challenger survey showed planned job losses in Q1 to be 120% above the number reported for Q4, while the National Federation of Independent Businesses (NFIB) hiring intentions survey – which has probably been the best leading indicator of private payroll growth over the past couple of years or so – continues to show hiring intentions slowing and points to a significant slowing in private payrolls growth going forward. Clearly there is a conundrum here, something which makes it very difficult to put total faith in the picture painted by today’s numbers.

But ultimately, what really matters of course, is what the Fed thinks, and so far, there has been nothing forthcoming to suggest that Powell and his cohorts see anything but a robust labour market still. This message was repeated at the last FOMC meeting, when Powell himself said no signs of any cracks emerging in the labour market were in evidence yet, a message that has largely been repeated by Waller, who last week referenced the “continued strength” being seen in the US labour market and, only just yesterday, by Kashkari as well, who, while referencing inflationary pressures as ruling out interest rate cuts at the moment, added that considerable momentum was still evident in the US economy and which on its own was sufficient to question the need for any rate cuts being made this year.

Clearly both outlooks for the labour market cannot be correct, and what you consider to be the true underlying state of US labour demand requires either the NFIB survey and other private sector gauges of the labour market to be wrong, or leaves the Fed facing a substantial deterioration in payrolls growth in the near future. So far, the market appears to be taking the easy path and choosing to put its faith in the official BLS employment report being correct. But if this year’s initial inflation reports turn out to be just temporary blips and we start to see inflationary pressures dissipating once again going forward, and the likes of the NFIB survey turn out to be accurate, then the market may yet have to revise again its timing of the first interest rate cut, bringing the date forward again. Certainly, the scene has been set for a very interesting summer.

The market has chosen to put its faith in today's official BLS report as presenting a true picture of the strength of US labour demand, pushing back the timing of the first interest rate cut. But if the picture painted by other surveys, such as that presented by the NFIB, turn out to be correct, then it may yet need to bring them in again.