New Jobs Ease at 236K, Though Perhaps Not Enough to Scrap a May Rate Hike

It will take more data showing a slowing trend for the Fed to stop rate increases, let alone reverse them.

From the Federal Reserve’s point of view, the job numbers for March went in the right direction. The 236,000 new jobs were a little lower than the 238,000 consensus estimates from economists. Unemployment edged down to 3.5% from 3.6% in February. With revisions in January’s and February’s numbers, there were 17,000 fewer jobs than previously reported.

It’s a move in the right direction from the Fed’s view, as the organization’s representatives have repeatedly made clear. Increasing number of jobs means greater leverage for employees and companies competing for talent from a finite labor source, and that causes higher wages that in theory put upward pressure on inflation.

But although it’s significantly lower than the average monthly gain of 334,000 over the last six months, it still isn’t a large enough drop.

“When you look at today’s data coupled with February’s reported job openings, there’s still a lot of fat in the labor market as we approach the next recession that historically hasn’t been there,” Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, wrote in an emailed note.

Comerica Bank Chief Economist Bill Adams wrote, “The monthly jobs report roughly matched expectations and pointed to a still-growing economy but at a cooler pace than a few months ago. Imbalances in the labor market are lessening with labor force participation rising and job openings falling. The Fed will welcome cooler job growth and a less imbalanced labor market but could still be pushed to hike rates in early May if inflation surprises to the upside next week.”

That leaves concerns for commercial real estate.

“The latest lower-than-expected jobs report from the Bureau of Labor Statistics is bittersweet for multifamily,” Carlos Vaz, CEO of CONTI Capital Multifamily Real Estate, wrote in a note to “On the one hand, this marked slowdown in payrolls might encourage the Fed to end their crusade to rein in prices via interest rate hikes. If this does occur, the financial markets can breathe a little easier as debt and insurance costs stabilize. But on the other hand, the suppression of job growth will be a dreary signal for multifamily, considering apartment demand bears a tight correlation with job creation.”

Investors in Agency MBS, CMO, and CMBS bonds have been concerned. The Silicon Valley Bank and Signature Bank closures have forced the FDIC into having to sell $114 billion of bonds the institutions had held, and that could push down values of all such bonds, which are an important financing mechanism in CRE. Higher interest rates would make the values of these fall. And other banks have significant volumes of such bonds in the held-to-maturity category, which means additional financial institutions might start feeling effects of falling liquidity and, potentially, solvency.