The US economy is not letting war and the pandemic stand in the way of a good time

WASHINGTON, April 1 (Reuters) – Fears that the war in Ukraine will tip the U.S. economy toward 1970s-style stagflation have given way to signs that Americans plan to keep traveling, going back to restaurants and continuing to eat. a stable economy, although still incomplete. back to normal.”

The latest nonfarm payrolls report released on Friday showed employers added 431,000 jobs in March and the unemployment rate fell to 3.6%, continuing a strong hiring streak that has left key aspects of the US job market ” little different” from where they were before the pandemic. reported the Bureau of Labor Statistics.

Nearly 600,000 additional people were employed or looking for work in March compared to the previous month, adding to a recent steady rise in labor supply that Fed officials see as key to helping ease inflation, keep hiring at the good way and avoid a joint run. both in wages and prices.

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“Concerns about last year’s job supply continue to fade,” wrote Nick Bunker, director of economic research at job site Indeed. “The labor market is on a strong trajectory as strong demand draws more workers into employment with strong and increasingly stable wage growth.”

Significant gaps remain in the post-pandemic economy. Downtown office buildings are still underutilized in what may be one of the most persistent changes as workers and employers realized many jobs could be done from home.

But after a winter in which war, a new coronavirus outbreak and already high inflation painted a potentially bleak picture of even faster rising prices and slowing growth, recent high-frequency and government data show a expansion seemingly ready to go.

The number of people telecommuting continues to fall, as does the number of people who say the pandemic has kept them out of the workforce, which fell below one million in March, according to the BLS.

Gasoline consumption declined in March as prices nationwide topped $4 a gallon, but data from the Energy Information Administration still shows gasoline use remains around 95% of pre-pandemic levels. , roughly where it has been since early 2022.

Air travel is approaching 90% of pre-pandemic levels. Data from restaurant reservation site OpenTable shows in-person dining at 95% of pre-pandemic levels on 15 of the past 18 days through March 30.

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Inflation, which is triple the Federal Reserve’s 2% target, may mean consumers are getting less for their money. Spending data for February showed that consumption actually declined on an inflation-adjusted basis, with energy depleting a larger share of household budgets. Read more

However, the drop came after a spending surge in January, and analysts and Fed policymakers agreed this week that neither global events nor the ongoing pandemic have made a dent in the economy. American.

“So far, high gasoline prices have not led to demand destruction,” analysts at RBC Capital Markets wrote this week. Between rising wages and savings still plentiful for many households due to pandemic assistance payments, “the average American has never been more financially able to absorb $4 worth of gas than they are today.” The outbreak of war in Eastern Europe threatened to further stoke inflation, which is currently at its highest level in four decades. The prospect of a more aggressive Fed response to rising prices amplified talk of a “hard landing”: a recession triggered by rising interest rates, tightening credit, and a subsequent pullback in government spending. businesses and households.

A closely watched part of the bond market this week showed continued concern about that outcome as 10-year Treasury yields briefly fell below 2-year Treasuries, a sign of waning faith in future economic growth.

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Still, what economists and Fed officials see as the most telling signs of the bond market remained healthy.

“It is premature to start the countdown to the recession,” wrote Jefferies analysts Aneta Markowska and Thomas Simons. “This doesn’t look like a late-cycle economy… It’s a mid-cycle economy and the business cycle has room to run.”

RETURN TO NORMALITY

Far from slowing down the economy, the Fed’s target policy rate remains well below the level that would discourage spending or investment. The US central bank increased its fed funds rate by a quarter of a percentage point on March 16, raising it from the near-zero level set in March 2020 to offset the economic impact of the pandemic.

Interest rates are expected to rise steadily from now on, with Fed officials projecting increases of at least a quarter of a percentage point at each of the remaining six policy meetings this year, with the potential for hikes yet to come. higher that could, by the end of the year, wipe out any remaining Fed support for economic growth.

Fed policymakers said this week they will watch carefully how such anticipated rate hikes affect inflation and economic growth, and will be prepared to raise borrowing costs faster if prices don’t respond or halt them if appropriate.

But they stressed that the economy looks resilient right now, with companies perhaps struggling to find workers and supplies, but also meeting record demand, making strong profits and rising wages.

By some measures, the return to normalcy is here. Oxford Economics recently “withdrew” its weekly economic recovery tracker because the data it indexed, which measures employment, financial conditions, mobility and other topics, “essentially returned to pre-pandemic levels,” the Oxford analyst wrote. Oren Klachkin.

There are also signs that larger changes, expected by economists as part of a “normalized” economy, are starting to take shape.

Spending on services soared in February while spending on goods fell, a turnaround that Fed officials had expected and may be helpful in fighting inflation. Consumers bought record amounts of goods during the pandemic, when spending options on services were limited by social distancing rules and measures that have shuttered many businesses. High demand for cars, bikes, home appliances and other goods collided with a global supply system unable to keep up, resulting in rising prices.

Foot traffic data from cell phone tracking firm Unacast showed that visits to home goods and electronics stores, as well as car dealerships, dropped significantly in 2022 compared to last year, while that the hotel sector recovered quickly.

There are even some tentative signs that inflation might be moving in the right direction.

February data showed that year-over-year prices continued to rise, but a key measure of monthly inflation fell by a tenth of a percentage point.

One month doesn’t set a trend, but in a news conference after the March 15-16 monetary policy meeting ended, Fed Chairman Jerome Powell said that kind of month-over-month decline is “really what we’re looking for.”

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Information from Howard Schneider; Edited by Dan Burns and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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