Rhea Thomas, Senior Economist at Wilmington Trust, breaks down the highlights from the latest jobs report and discusses how inflation could impact economic growth. 

Opening Bell

U.S. Adds 431,000 Jobs in March, Bringing Unemployment Rate to 3.6%

here to discuss now is really toma, senior economist at Wilmington's Trust, we're glad to have you on this morning. What is your reaction, you're kind of top line reaction to the jobs report. Sure. Thanks for having me. Um as you mentioned that the underlying trend in job growth remains very strong. Um and we saw that with the payroll gains which are now on a six-month basis just under 500,000 a month. But what is even more important in our view is the story coming from the labor force participation and wage growth numbers, which are really key for the Fed outlook. Um So Powell, in his past press conferences, has noted that labor market tightness is almost at an unhealthy level. Um and labor market tightness of course, refers to the mismatch between the supply of workers and the demand for workers. Um And coming into this report, we've had nearly two job openings for every unemployed worker and what we saw in this report was some signs that labor supply is actually coming back. We saw a solid uptick in the number of workers returning to the labor force. And we also saw some according slowing of the wage pressures when you look at them on a three month annualized basis right now, they're running at about 4.5% still elevated relative to their 2017 to 2019 average of about 3% but they are off of the highest seen back in mid 2021 when they were around 6.3%. So we think that's encouraging in terms of the Fed's ability going forward to potentially hike rates up front in order to address the elevated inflation numbers we're seeing right now. But if we continue to get some moderation in those reach pressures going forward as labor supply returns, we would expect that they might be able to take a pause and assess where they are before having to hyped too aggressively. And I think we have the same read on that because the way that I read this report kind of on the top line is essentially this is probably accommodating for the Feds to maybe do a 50 basis point hike this upcoming may and be a little bit more aggressive just to be clear. Is that kind of the same thought process you're having here? Yes, the underlying momentum does indicate a labor market that is very healthy. Um, but what we're seeing is the beginnings of the signs that maybe we're getting some of that labor supply to come back into the market and that might release some of the pressures that we're seeing in terms of labor market tightness. But yes, upfront. We do think that this does give the Fed the green light to hike in May and again in june, but going forward, we do you think the month over month readings in wages as well as inflation will be really important for determining the Fed's future path? We do have an outlook that inflation will start to moderate as we go into the latter part of the year and that that may allow the Fed to go at a slower pace than is currently projected. You know, we did see strong hiring of course in leisure and hospitality manufacturing and even education. What is the signal about labor participation? That rate? Obviously that rate was 64 or 62.4 versus february 2020. It was like 63.4 so down just slightly uh below the february 2020 rate. What factors do you see kind of potentially stifling this momentum? We actually see labor force participation likely to rise going forward. You do have some of these virus concerns starting to ease childcare concerns that have been keeping people out of the labor force, uh starting to fall off as well. Um and then you have some of the fiscal cushion. Um we had last year starting to thinned down as well and that makes want some workers to return to the labor force in addition to the fact that they may be drawn in by those higher wages that we're seeing. Um, So we do think that all of those will lead towards uh a looser labor market going forward to continue kind of breaking down the numbers that came out today for the jobs report. The monthly jobs report. I want to bring back rhea thomas, senior economist at Wilmington's trust Maria, I want to kind of dig into with you. Um wage inflation right? That that that was a key number in this report as well. It showed about 4/10 of a percent increase and then 5.6% increase over a year over year, slightly lower than kind of the overall inflation picture. I think the latest read we got was over 7% 7.6%. If I'm if I'm correct here. Um What was your take on on reading that wage inflation number? What does it mean on the consumer side? And certainly on the backend side of these companies, it's a great question. Um and it's again really key for where the Fed outlook as well. Um And we do think that if you look at the wage pressures on a sort of a trend basis so that three month annualized basis, you are starting to see some stabilization and even some moderation in those very elevated wage pressures. Um And we also see some signs that labor demand might be plateau going a bit as well, still at very elevated levels. So again that the labor market remains healthy. But if you look at high frequency job postings, um those have kind of come off the boil a bit uh since their highs at the end of last year. So that combination of higher supply uh and potentially slowing demand for workers could, you know, provide a bit of that release valve that the Fed is likely looking for in order to kind of take a breather um, with their, their hiking path going forward and then really quickly here, obviously, so many businesses passing off kind of the higher cost that they're paying on, you know, the wage side to even the commodity side to the consumer, but I kind of asked this question over the last couple of weeks, there's a limit I imagine to which the consumer can obviously absorb that or is willing to absorb that. How do you see that cycle of kind of higher wages and higher prices, higher wages and higher prices impacting the overall labor market and and then the broader economy also a very good point. Um, and it's one of the reasons that we do expect that inflation will eventually moderate because we do think that prices will only be able to rise by so much and it eventually, uh, consumers will start to uh reduce their spending in response to those higher prices. And that will be particularly the case, especially as we face some elevated energy prices. Uh, if you look at, uh, you know, the move up in oil that is already hitting the gas pumps and, you know, when you look at the spending um, by income quintile for lower income households in particular, uh, the spending on energy is nearly double their share relative to those of higher income households. We do expect that there will be some slowing from the consumer spending side and that does feed into our outlook this year. If we do have these continued elevated energy prices for a moderately lower GDP outlook than we've had at the start of the year. Really thank you so much for sticking around with us. Really wanted to kind of continue that conversation because obviously it's an important one with the jobs report coming out today. Rhea thomas, senior economist at Wilmington's Trust.