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2024 Investment Outlook

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Key takeaways

  • The U.S. labor market’s strength continues to exceed expectations.

  • 303,000 new jobs were added in March, outpacing respectable growth reported in January and February.

  • The unemployment rate remains below 4%, while wage gains are still above average.

Another solid jobs report for the month of March 2024 indicates that the U.S. labor market continues to play an important role stimulating economic growth, much as it has since mid-2020. Employers are adding new jobs at a healthy pace and the unemployment rate remains low by historical standards. At the same time, workers’ earnings continue to outpace the broader U.S. inflation rate.

The U.S. labor market in March registered job growth for the 39th consecutive month, with payroll employment growing by 303,000. It was the largest monthly jobs gain in 10 months. The unemployment rate declined a bit, to 3.8%, but extended its streak of below 4% to 27 consecutive months, the longest month-to-month stretch of below 4% unemployment since 1967 to 1970.1

The strong job market puts consumers in a position to maintain solid spending levels, keeping the economy growing in the face of persistent inflation and elevated interest rates. The nation’s gross domestic product (GDP) a measure of the America’s economic output, grew by an annualized rate of 2.5% in 2023, outpacing its 2022 growth rate of 1.9%.2

Job market data is one of many factors influencing monetary policy decisions by the Federal Reserve (Fed), which is holding the line on the short-term interest rate it controls. While the Fed has indicated it plans to begin reducing interest rates in 2024, it hasn’t indicated when rate cuts might begin. How might the Fed react to the most recent trends as it determines future interest rate moves? Does today’s job market provide any guidance for investors as they set expectations going forward?

 

Solid job growth

Job growth slowed from its recent peak period in 2021, when the economy rebounded from the short but severe COVID-19 recession. Yet the strength of today’s labor market continues to exceed most analysts’ expectations, particularly given the high interest rate environment. In the first three months of 2024, non-farm payrolls grew by an average of 276,000 jobs per month, to this point exceeding the pace of job growth in 2023.3

Graph depicts strong, but tapering job growth for 2021, 2022, 2023 and through March 31, 2024.
Source: U.S. Bureau of Labor Statistics as of March 31, 2024.

The most notable March job gains occurred in health care, government employment, construction, and leisure and hospitality.1

March’s 3.8% unemployment rate was consistent with recent months, when unemployment ranged from 3.7% to 3.9%.1 Unemployment is only marginally higher than the most recent low of 3.4% reached in April 2023. There continues to be an unusual imbalance between the number of job openings and the availability of individuals seeking employment. At the end of January, according to the U.S. Bureau of Labor Statistics, there were 8.8 million job openings in the U.S., compared to 6.4 million unemployed persons. That means there are still approximately 1.4 jobs for every unemployed person seeking work.4 “There’s not much softness yet in the labor market,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “In normal times, we’d see less than one job opening per unemployed individual.”

“Improving labor participation is one way to address the tightness in the labor market that’s propping up wage gains.”

Matt Schoeppner, senior economist at U.S. Bank

One measure economists watch to forecast potential changes to the strength of the labor market is the weekly new jobless claims report. In the most recent report, issued April 4, 2024 by the U.S. Department of Labor, initial jobless claims rose to 221,000. That represented an increase of 9,000 from the previous week, and was the highest reading since late January.5 Haworth believes that even though the weekly jobless claim number rose, it doesn’t yet set off alarm bells. “Businesses, in general, are still reluctant to let workers go because it's been difficult to add workers when needed,” says Haworth.

The labor force participation rate, representing the percentage of the population currently in the workforce, rose slightly, to 62.7%. Labor force participation is considered a key barometer of the broader economy’s health. The labor force participation rate was higher, at 62.8%, between August and November.1 “Improving labor participation is one way to address tightness in the labor market that’s propping up wage gains,” says Matt Schoeppner, a senior economist at U.S. Bank.

 

Watching for the Fed’s response

Many analysts anticipated a weaker job market considering the Fed’s efforts to slow the economy as a way to temper what had been surging inflation. The Fed raised its short-term federal funds target rate from near 0% before March 2022 to a range of 5.25% to 5.50% by July 2023. Rates have held steady since, with the Fed forecasting handful of interest rate cuts this year. However, the start date of those cuts remains unclear. Comments from Fed Chair Jerome Powell and other Fed officials indicate that the initial rate cut is likely to occur later than when markets had initially anticipated, until the Fed is more confident inflation is receding.

“The Fed is looking for incremental, month-to-month declines in living costs,” says Haworth. “Even though Fed officials don’t indicate an expectation of inflation reaccelerating, they also don’t appear to be convinced that rate cuts should occur just yet.”

According to Schoeppner, the job market’s ongoing strength may complicate the Fed’s rate cutting plans. A tight labor market offering more competitive wages may continue to provide consumers the wherewithal to maintain higher spending levels. That heightens the risk that inflation could persist or even trend higher. Inflation as measured by the Consumer Price Index (CPI) stood at 3.2% for the 12 months ending in February.6

 

Challenges in the labor market

The Fed faces a conundrum due to the job market’s continued strength, according to Haworth. “The Fed’s focus is on how much wages will grow. Can the Fed meet its objective of full employment while bringing inflation down?” asks Haworth. Wage growth slowed from the levels of the previous three years, ending 2023 with a 4.1% growth rate. Average hourly wages grew 4.5% for the 12 months ending in January, faster than any time prior to early 2022, and 4.3% in February, but returned to the 4.1% level in March.1 “It seems unlikely that we’ll see a rapid reduction in wage growth, given the current situation of more employers clamoring for labor than there are people seeking work,” says Haworth.

Chart depicts private sector hourly wage growth 2014 – March 31, 2024.
Source: U.S. Bureau of Labor Statistics. *As of March 31, 2024.

What to expect going forward

Investors continue to closely follow jobs data for signs of a slowdown, which could provide the Fed with the impetus to begin cutting interest rates. Lower rates are considered a way to provide a boost to the economy, which would likely help extend the stock market rally that began in 2023.

Talk with a wealth professional if you have questions about your personal financial circumstances or investment portfolio.

Frequently asked questions

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Is the economy at risk of a recession?

The Federal Reserve is focused on fighting inflation with monetary policy intended to slow consumer demand. Does this put the economy at risk of a recession?

How to invest in today’s market

With inflation retreating and interest rate cuts likely coming later this year, how should investors position their portfolios to capitalize on potential opportunities, while guarding against risks?

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Disclosures
  1. U.S. Bureau of Labor Statistics, “Employment Situation Summary, March 2024,” April 5, 2024.

  2. U.S. Bureau of Economic Analysis, “Gross Domestic Product, Fourth Quarter 2023 (Third Estimate),” March 28, 2024.

  3. Source: U.S. Bureau of Labor Statistics.

  4. U.S. Bureau of Labor Statistics, “Job Openings and Labor Turnover Summary, February 2024,” Apr. 2, 2024; and “Employment Situation Summary, March 2024,” April 5, 2024.

  5. Source: U.S. Employment and Training Administration.

  6. U.S. Bureau of Labor Statistics, “Consumer Price Index Summary, March 2024,” April 10, 2024.

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