The Nasdaq is technically in a bull market and investors have ditched the dollar in favour of currencies with more risk attached to them, even cryptocurrencies.
But this week’s data releases have served as a reminder that policy transmission – the effect of changes in interest rates on the real world – is alive and well. Twelve months and nearly 500 basis points of rate rises will eventually take their toll.
Hiring in the private sector is slowing, manufacturing activity neared a three-year low in March and job openings are dropping.
A lot is now hinging on Friday’s employment report. A Reuters poll of economists offers a forecast for a rise of 240,000 for March, down from February’s 311,000 increase.
Wages are expected to have grown by 4.3%, the slowest rate since 3.6% in June 2021, while the unemployment rate is forecast to have held at 3.6%, which could prove music to the Federal Reserve’s ears. If wage growth is gently moderating and the labour market isn’t getting tighter, it would indicate that the rate rises are working and the economy isn’t that much worse off for it.
With any data release, there’s always room for surprise and the memory of January’s monster 500,000-plus reading that prompted a 180-degree turn in market expectations for monetary policy back in February is still fresh in everyone’s mind.
And it should be. In the last 23 months, NFPs have delivered an upside surprise on 16 occasions and in the last year, they’ve undershot forecasts precisely once.
Expectations around wage growth have become closer to the mark as the reality of persistent inflation has struck home. Average earnings have missed forecasts three times in the last year. In the year before that, they delivered an upside surprise every time.
