What Jobs Numbers Tell Us About Further Rate Increases

What Jobs Numbers Tell Us About Further Rate Increases by Rick Rieder, BlackRock

BlackRock’s Rick Rieder explains why he thinks job growth will slow down by the second half of the year and shares his thoughts on the broader implications for central bank policy.

The labor markets finished strong in 2015, but the growth is bound to be difficult to sustain for two key reasons: First, it’s getting harder for employers to find qualified applicants, and second, economic conditions in the U.S. may have begun to moderate. Here’s a look at how payrolls tend to follow company profits, but with a lag:

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We’ve also seen temporary hiring begin to slow, which historically has been a signal of future weakness in payrolls growth because it hints at changes in the supply/demand of labor. This makes it more difficult for rate normalization, since the economic cycle may indeed be moderating just as the Federal Reserve (Fed) seeks to increase rates.

What the latest jobs numbers mean for the Fed

Still, we think the persistence of strong lagged payrolls numbers places the Fed back in play in terms of a hike during the first half of the year. As such, market assumptions are likely to adjust to reflect this possibility as well.

Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Global Fixed Income and is a regular contributor to The Blog.