CU Economists Weigh In as Unemployment Nears Pre-Pandemic Level

The Fed has further reason to continue raising rates as March showed a healthy gain in jobs, wages rising and unemployment falling almost to its pre-pandemic level, economists said Friday.

Friday’s report from the Bureau of Labor Statistics revised its estimate of job gains up by 10% for February and 5% for January.

Curt Long, NAFCU’s chief economist and vice president of research, said the report should support a 50 basis point rate hike when the Federal Reserve’s Open Market Committee meets on May 3-4.

“The benefits of waning COVID cases were evident, as the number of employees absent due to illness declined by 490,000, and unemployment among women who maintain families dropped sharply,” Long said.

Mike Fratantoni, chief economist for the Mortgage Bankers Association, also said the report shows the need for Fed to continue raising rates to control inflation, especially because the tight job market is pushing wages higher.

“The rapid drop in the unemployment rate says that the pool of potentially available workers continues to drain quickly,” Fratantoni said. “With the large number of job openings reported in the most recent data, there will continue to be significant upward pressure on wages, with wage growth over the last 12 months running at 5.6%.”

“We continue to expect that the Federal Reserve will move rates up expeditiously to counter surging inflation, and that this report only adds more urgency to their plans to do so.”

CUNA Senior Economist Dawit Kebede said subsiding COVID-19 cases contributed to March’s strong gain of 431,000 jobs after seasonal adjustments.

“A quarter of the job gains occurred in leisure and hospitality as consumers are feeling more comfortable traveling and engaging in-person,” Kebede said.

Kebede noted that March’s 3.6% unemployment rate, down from 3.8% the month before, is now only a tenth of a percentage point higher than its 3.5% pre-pandemic level in February 2020.

“Labor force participation increased slightly indicating more people are re-entering the job market,” Kebede said. “However, it is still lower than the pre-pandemic participation level, leading employers to increase wages to attract workers.”

Average hourly earnings were a seasonally adjusted $31.73 in March, up 5.6% from a year ago.

“Continued increase in wage growth will lead to more price increases as businesses transfer these costs to consumers,” Kebede said. “This impacts low-wage earners who are already struggling to make ends meet with price increases in broad consumer items.”

Fratantoni said the wage increases will help offset mortgage rates that have spiked more than half a percentage point over the past two weeks, reducing affordability for many potential first-time homebuyers.

“And the confidence that many potential homebuyers have in their financial situation also benefits from this historically strong job market,” he said.

Fratantoni said the report also contains good news for commercial real estate lenders and investors, showing 10% of workers teleworking because of the pandemic — less than half the level from its peak.

“As the federal government and others return to work in April, this number should drop sharply, which may well lead to further job changes in retail, professional services and other sectors that are dependent on in-person work,” he said.