The upshot: Higher interest rates are in the offing, he said. “Fed chair [Jerome] Powell communicated earlier this week that incoming data on the U.S. economy continues to show strength and that a higher level of interest rates, and potentially for a longer period of time, is likely needed to cool inflation,” the economist said on Friday. “On net, this report does show some slowing, particularly with respect to the breadth and the amount of job growth.”
He explained the various employment permutations studied: “Wage growth, as measured by average hourly earnings, slowed in February, but the year-over-year rate of 4.6 percent is still strong as job openings remain elevated and companies seek to fill these open positions.”
He also zeroed in on job levels from a longitudinal perspective: “The unemployment rate increased to 3.6 percent, partly driven by another increase in labor force participation, but remained well below historical averages. We expect the unemployment rate to increase over the course of this year as the economy cools, reaching 4.8% at the end of the year.”
Were it not for inflation, the latest jobs report would’ve boded well for the housing market, he said. However: “The housing market typically benefits from strong employment conditions, but as monetary policy has tightened to combat inflation, bringing about higher rates and tighter financial conditions, homebuyers have pulled back over the past year.
“We expect the economy to go into a mild recession this year, and with that a cooling in home prices and lower mortgages rates, which should help affordability conditions and bring a gradual recovery in housing activity.”