March jobs report shows 'inflation is cooling, but not fast enough': Economist

The March jobs report out this morning revealed that the U.S. labor market remains in a strong position. RSM Chief Economist Joe Brusuelas and John Hancock Investment Management Co-Chief Investment Strategist Emily Roland joined Brad Smith and Seana Smith on Yahoo Finance Live to break down what the numbers mean for the overall economic outlook.

According to Brusuelas the "primary takeaway" from today's data: the Fed will hike rates by 25 basis points at their May meeting. He said the job market is "strong albeit cooling," calling the 3.5% unemployment rate "pretty much status quo." But the market is still hungry for workers, with a shortage, particularly in the service industry. Overall he says the still-tight labor market tells us "inflation is cooling but not fast enough."

Roland calls the U.S. labor market "undoubtedly the strongest pillar" of the economy. She says that what is notable in this report is that non-farm payrolls beat expectations for the 12th straight month. Roland pointed to the bond market, which repriced expectations for the Fed's May move. Prior to the jobs report, the rate hike expectation was 50-50, however, after this report, the bond market indicates that "25 basis points is now the base case."

Key Video Moments:

00:00:08 - Brusuelas "the Fed will hike rates"

00:01:00 - "Inflation is cooling but not fast enough"

00:01:15 - Labor market "strongest pillar" of U.S. economy

00:01:53 - "The Fed has some work" ahead of them

To watch the full breakdown of the March jobs report with Joe Brusuelas and Emily Roland, click here.

Video Transcript

BRAD SMITH: Joe, I'll go to you first, just because you're sitting to my right here. Your read in on the data that just crossed on the employment situation.

JOE BRUSUELAS: The Fed's going to hike its policy rate by 25 basis points when it meets in May. I think that's the primary takeaway. Look, a 3 and 1/2% unemployment rate, pretty much status quo, a strong, albeit cooling job market. This is what you want to see, but it's not-- it's necessary but not sufficient for the Fed to actually declare, hey, a peak. Wages, what, we were at 4.2 on a year ago basis. 0.3, I want to dig in a little deeper. I think we're going to have a 3 handle on a three-month average annualized pace.

That gives you a sense, I think, of where, one, the risk of a wage price spiral is. That means it's diminished. That's actually good. That means we will get a near term top in that policy rate peak. But look, demand's still stout for workers. We're short workers in all kinds of service industries. So we have a tight labor market. Inflation's cooling, but not cooling fast enough.

SEANA SMITH: Emily, what do you think? Do you agree the print coming in slightly above expectations? Unemployment, 3 and 1/2%, really pointing to the fact that the labor market remains very tight.

EMILY ROLAND: Yeah, Seana, absolutely. The US labor market is undoubtedly the strongest pillar of the US economy today. And in fact, we just beat expectations in the non-farm payrolls report for 12 months in a row. And that's a streak that dates all the way back to 2000. So no doubt about it.

And we are seeing the bond market reprice expectations, as Joe mentioned, for what the Fed's going to do in May. We were looking at about a 50/50 chance of another 25 basis point rate hike versus a hold in May. And now I'm looking at the bond market expectations, and 25 basis points is now the base case. I'm looking at the two-year Treasury yield this morning. We're up about 12 basis points, another reflection that the Fed still has some work to do here.