March employment: A last hurrah?

Summary

The March employment report generally was encouraging. A 228K increase in nonfarm payrolls topped expectations and more than offset downward revisions to job growth in prior months. The breadth of job growth across industries looked healthy, and the increase in the unemployment rate from 4.1% to 4.2% was mostly a rounding effect. On balance, it was a solid but unspectacular jobs report.

Of course, today's employment report feels more dated and backward-looking than usual. The sharp escalation in trade tensions this week have fundamentally altered the economic outlook. Coming into the week, our economic forecast already contained assumptions for higher tariffs, slower economic growth and three 25 bps rate cuts by the FOMC this year. That said, our tariff assumptions were still well-below what President Trump announced this week. Accordingly, the outlook for the U.S. labor market going forward is less sanguine than it was one month ago. There already have been hints in the data that labor demand is cooling on trend, and this week's policy developments add further weight to that argument.

We will provide a full forecast update for the federal funds rate and the broader U.S. economy in a publication next week. For now, our current published view of three 25 bps rate cuts this year has risks skewed toward more easing, while our forecast for a 4.3% unemployment rate at year-end has upside risks.

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