Economics

Job gains expected again in March. What to look for in Friday’s report

Published

11 months ago

April 5, 2024

Business Finance News

A person works on a Bowlus recreational vehicle at Bowlus’ factory in Oxnard, California, Feb. 23, 2024.

Timothy Aeppel | Reuters

The March nonfarm payrolls count likely will indicate hiring continuing at a solid pace, though some weakening foundations of the labor market could take greater focus when the Labor Department releases its key report Friday morning.

Job growth is expected to come in at 200,000 for the period, according to the Dow Jones consensus forecast. If that’s correct, it will mark a slowdown from February’s initially reported 275,000 but is still a strong pace by historical terms.

Yet a funny thing has been happening with the jobs reports recently: Initially strong numbers have tended to be lowered in subsequent estimates, raising questions about whether the jobs situation is as positive as it looks.

That will be just one of several key areas in focus when the report is released at 8:30 a.m. ET.

Strong, but how strong?

February’s release raised eyebrows with a gain that trounced the Wall Street outlook for 198,000 new jobs. Also gaining notice, though, were revisions to the prior two months that reduced December’s count by 43,000 to 290,000 and January’s by a whopping 124,000 to 229,000.

For all of 2023, revisions took 520,000 off the initial estimates — there are three readings in total — countering a historical trend in which the final numbers are generally higher than the first readings.

The trend “makes me wonder about the credibility of the first number,” said Dan North, senior economist at Allianz Trade Americas. “So I’ll be looking for the revisions from the prior month to see if they’re going to be knocked down, and most likely they will be. That’s why if you get a big number, take it with a grain of salt.”

There is some anticipation on Wall Street of an upside surprise: Goldman Sachs raised its initial forecast to 240,000, an increase of 25,000, following strong private payroll data from ADP showing a gain of 184,000 on the month, and other indicators.

Drivers of growth

Along with numbers, composition is important, namely where the growth is coming from and whether there are any cracks in the employment armor. The job market’s resilience has confounded many economists who spent the past two years searching for a jobs-led recession that never happened.

“Firms are seeing strong demand. They’ve dramatically increased their productivity, and so they’re hiring for different kinds of jobs,” said Luke Tilley, chief economist at Wilmington Trust. “That has enabled them to deal with the high-rate environment.”

Still, there are areas of concern.

Household employment, which counts individual workers rather than total jobs and is used to calculate the unemployment rate, has fallen by nearly 1 million since November. The survey is more volatile and uses a much smaller sample than the establishment count that yields the headline payrolls growth total. But there’s no obvious reason for the weakness, though some economists speculate it could involve the surge in illegal immigration over the past few years.

Also, full-time employment has declined slightly over the past year, while the rolls of part-time workers have swelled by more than 900,000. There also has been a sharp decline in temporary workers, a classic sign of a slowdown.

Inflation signals

Federal Reserve officials will watch all those factors for signs of inflation pressures. Stocks have been under pressure this week as investors worry about the direction of monetary policy.

Average hourly earnings are projected to have increased 0.3% in March, which would be a jump from 0.1% in February, though the estimate for the annual gain is 4.1%, or 0.2 percentage point less.

If the consensus calls are correct, it’s unlikely to move the needle much for the Fed, which is expected to begin cutting interest rates gradually starting in June, according to futures market pricing tracked by the CME Group.

“Unless there is a wildly positive or outright tragic employment report, they’re going to stay on course,” North said. “They’ve been really clear recently pushing back on the market, saying we’re in no big hurry, inflation is not down to 2%.”

North said he expects the Fed to wait until July before it starts cutting rates — contrary to current market expectations.

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Economics

Germany’s election will usher in new leadership — but might not change its economy

Published

1 day ago

February 21, 2025

Business Finance News

Production at the VW plant in Emden.

Sina Schuldt | Picture Alliance | Getty Images

The struggling German economy has been a major talking point among critics of Chancellor Olaf Scholz’ government during the latest election campaign — but analysts warn a new leadership might not turn these tides.

As voters prepare to head to the polls, it is now all but certain that Germany will soon have a new chancellor. The Christian Democratic Union’s Friedrich Merz is the firm favorite.

Merz has not shied away from blasting Scholz’s economic policies and from linking them to the lackluster state of Europe’s largest economy. He argues that a government under his leadership would give the economy the boost it needs.

Experts speaking to CNBC were less sure.

“There is a high risk that Germany will get a refurbished economic model after the elections, but not a brand new model that makes the competition jealous,” Carsten Brzeski, global head of macro at ING, told CNBC.

The CDU/CSU economic agenda

The CDU, which on a federal level ties up with regional sister party the Christian Social Union, is running on a “typical economic conservative program,” Brzeski said.

It includes income and corporate tax cuts, fewer subsidies and less bureaucracy, changes to social benefits, deregulation, support for innovation, start-ups and artificial intelligence and boosting investment among other policies, according to CDU/CSU campaigners.

“The weak parts of the positions are that the CDU/CSU is not very precise on how it wants to increase investments in infrastructure, digitalization and education. The intention is there, but the details are not,” Brzeski said, noting that the union appears to be aiming to revive Germany’s economic model without fully overhauling it.

“It is still a reform program which pretends that change can happen without pain,” he said.

Geraldine Dany-Knedlik, head of forecasting at research institute DIW Berlin, noted that the CDU is also looking to reach gross domestic product growth of around 2% again through its fiscal and economic program called “Agenda 2030.”

But reaching such levels of economic expansion in Germany “seems unrealistic,” not just temporarily, but also in the long run, she told CNBC.

Germany’s GDP declined in both 2023 and 2024. Recent quarterly growth readings have also been teetering on the verge of a technical recession, which has so far been narrowly avoided. The German economy shrank by 0.2% in the fourth quarter, compared with the previous three-month stretch, according to the latest reading.

Europe’s largest economy faces pressure in key industries like the auto sector, issues with infrastructure like the country’s rail network and a housebuilding crisis.

Dany-Knedlik also flagged the so-called debt brake, a long-standing fiscal rule that is enshrined in Germany’s constitution, which limits the size of the structural budget deficit and how much debt the government can take on.

Whether or not the clause should be overhauled has been a big part of the fiscal debate ahead of the election. While the CDU ideally does not want to change the debt brake, Merz has said that he may be open to some reform.

“To increase growth prospects substantially without increasing debt also seems rather unlikely,” DIW’s Dany-Knedlik said, adding that, if public investments were to rise within the limits of the debt brake, significant tax increases would be unavoidable.

“Taking into account that a 2 Percent growth target is to be reached within a 4 year legislation period, the Agenda 2030 in combination with conservatives attitude towards the debt break to me reads more of a wish list than a straight forward economic growth program,” she said.

Change in German government will deliver economic success, says CEO of German employers association

Franziska Palmas, senior Europe economist at Capital Economics, sees some benefits to the plans of the CDU-CSU union, saying they would likely “be positive” for the economy, but warning that the resulting boost would be small.

“Tax cuts would support consumer spending and private investment, but weak sentiment means consumers may save a significant share of their additional after-tax income and firms may be reluctant to invest,” she told CNBC.

Palmas nevertheless pointed out that not everyone would come away a winner from the new policies. Income tax cuts would benefit middle- and higher-income households more than those with a lower income, who would also be affected by potential reductions of social benefits.

Coalition talks ahead

Following the Sunday election, the CDU/CSU will almost certainly be left to find a coalition partner to form a majority government, with the Social Democratic Party or the Green party emerging as the likeliest candidates.

The parties will need to broker a coalition agreement outlining their joint goals, including on the economy — which could prove to be a difficult undertaking, Capital Economics’ Palmas said.

“The CDU and the SPD and Greens have significantly different economic policy positions,” she said, pointing to discrepancies over taxes and regulation. While the CDU/CSU want to reduce both items, the SPD and Greens seek to raise taxes and oppose deregulation in at least some areas, Palmas explained.

The group is nevertheless likely to hold the power in any potential negotiations as it will likely have their choice between partnering with the SPD or Greens.

“Accordingly, we suspect that the coalition agreement will include most of the CDU’s main economic proposals,” she said.