Stocks end the day higher even as blowout jobs report pushes some Fed officials to consider another rate hike

Stocks rallied Friday after the latest jobs report came in piping hot.

The Dow rose 307 points, or 0.8%, after climbing more than 400 points at the day's highs. The S&P 500 gained 1.1% and the Nasdaq Composite added 1.2%. Still, all three major indexes ended the week lower, starting the second quarter of the year on a sour note.

While the latest jobs report supports the idea that the US economy is holding strong against interest rates at a 23-year high and could avoid a recession, it also puts into question when the Federal Reserve will begin its long-awaited rate cuts.

The US economy added 303,000 jobs last month, according to data released Friday by the Labor Department. That blew past expectations for 205,000 job gains, according to FactSet consensus estimates.

"This jobs report should indicate that there is no rush and no need for the Fed to save the labor market, especially if it will just reignite inflation down the road," said Mike Sanders, head of fixed income at Madison Investments.

As stocks settle after the trading day, levels might change slightly.

Friday's jobs report was mostly positive: Employment gains were a robust 303,000 in March and the jobless rate dipped to 3.8%, extending a historic streak of unemployment below 4%.

However, the report also included a continuation of a more concerning streak: Black unemployment rose for the third consecutive month, rising sharply to 6.4% from 5.6% in March. It's the highest that rate's been since August 2022. The unemployment rate for Black women rose 1.1 percentage points, to 5.9%.

As of March, the Black unemployment rate is now nearly double that of the White jobless rate of 3.4%.

The household survey that feeds into the jobs report is typically much more volatile than the establishment survey, so it's possible that this leap may be exaggerated; however, it could be a worrying sign, Elise Gould, senior economist for the Economic Policy Institute, wrote Friday.

An analysis from the Bureau of Labor Statistics showed that the increase in Black unemployment "is more likely signal than noise," wrote Bill Adams, chief economist for Comerica Bank, in a note.

"In historical business cycles, Black workers have been the last to be hired during the expansion and first fired during the contraction, so an increase in the Black unemployment rate is eye-catching to forecasters," he wrote.

"But the rest of the jobs report shows the labor market to be in quite good shape, so the data point is unlikely to be a sign of broader weakness this time," Adams said.

The 303,000 jobs added in March brings up the 2024 average to 276,333 jobs per month. That's more than what was seen last year (average of 251,000 jobs) and well above pre-pandemic averages (183,000 from 2010-2019; 125,000 jobs from 1939-2019).

It does bring up the question: How much of this growth is sustainable?

Prior to the pandemic, it was thought that adding between 60,000 and 100,000 jobs each month would be enough to keep up with population growth (and account for the rising Boomer retirements).

However, a report last month from the Brookings Institution speculated that the sustainable employment growth range should be much higher — to the tune of 160,000 and 200,000 jobs per month.

“Thanks to stronger immigration flows, the economy’s capacity has been increased,” Greg Daco, chief economist at EY-Parthenon, told CNN.

As of March, the number of employed foreign-born workers climbed to a fresh record high of 31.1 million, according to BLS data. Foreign-born workers' labor force participation rate was 65.9% last month. Comparatively, the participation rate for native-born workers was 62%.

“[Net immigration growth] is adding to the pool of American workers, and those immigrants are bringing some productivity gains with them in technological innovation and refinements,” Brett House, professional practice professor at the Columbia Business School, told CNN. “That’s an important piece of data in an election year, when immigration is under a lot of scrutiny … The United States unambiguously is benefiting from an increase in net immigration.”

The onset of the Covid-19 pandemic quickly devastated a major economic engine: The US leisure and hospitality industry saw its employment quickly halved, losing more than 8 million jobs in the span of two months.

The lockdowns, the waves of variants and the shifts in technology as well as Americans' migration, working and spending patterns cast doubt on when — or if — those jobs would return.

It took four years.

In March, the leisure and hospitality industry added an estimated 49,000 jobs, bringing overall employment to 16.905 million and finally surpassing February 2020 levels.

Leisure and hospitality, along with health care and government, have been the primary drivers of job growth during the past year. For leisure and hospitality, it has been a virtuous cycle: The service sector has benefited greatly from experience-seeking consumers who have been spending heartily in part because of a strong labor market and wage gains that are not being completely eroded by inflation.

It's been almost a year since the Federal Reserve raised interest rates. For a while, Fed officials were signaling the current level of interest rates, the highest in 23 years, was sufficient to rein in inflation and it could become appropriate to consider cutting rates.

But now, some Fed officials are floating the possibility of hiking interest rates.

“While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further, should progress on inflation stall or even reverse," Fed Gov. Michelle Bowman said Friday.

The progress in inflation over the past year came from supply chain improvements, a higher supply of workers due in part to immigration and lower energy prices, she said.

"It is unclear whether further supply-side improvements will continue to lower inflation," Bowman said Friday, speaking at an event hosted by the Manhattan Institute. At the same time, she's concerned that geopolitical conflicts and fiscal spending could put more pressure on prices.

Bowman's remarks echo those of Minneapolis Fed President Neel Kashkari one day earlier. He said rate hikes are "certainly not off the table." But he said they aren't likely. Kashkari is not voting on monetary policy decisions this year.

Most Fed officials do expect to eventually cut rates this cycle — but will need to see more convincing data that shows inflation is on the path to the Fed's 2% goal. Strong jobs data doesn't necessarily work against that, given inflation has been coming down concurrently, Fed Chair Jerome Powell said earlier in the week. But it's certainly something officials are monitoring.

New inflation data is set to be released next week.

Stocks rallied Friday midday following a brutal week of trading, as investors parsed the latest jobs report.

The Dow rose above the 39,000 level again Friday, gaining 422 points, or 1.1%. The S&P 500 gained 1.3% and the Nasdaq Composite added 1.6%. Still, all three major indexes are on track to end the week lower, after tumbling on worries that the Federal Reserve will cut interest rates later than expected.

"It’s hard to find anything wrong with the March jobs report," wrote Steve Wyett, chief investment strategist at BOK Financial, in a Friday note. "The strong labor market should continue to support the US consumer and keep the Fed on hold for now. We still expect the next move from the Fed to be to lower rates, but there is little sense of urgency at the moment."

CNN's Fear & Greed Index, which measures seven barometers of market sentiment, rose to a "greed" reading from "neutral" at the prior close.

Treasury yields climbed after fresh data showed the US economy added a staggering 303,000 jobs in March. The yield on the 10-year Treasury note rose to 4.37%.

Dallas Federal Reserve President Lorie Logan joined the growing bloc of Fed officials questioning whether rate cuts are appropriate at all this year.

"I believe it’s much too soon to think about cutting interest rates," Logan said Friday, just hours after the blowout jobs report was released.

A chief concern of hers is that inflation will get stuck at a level above the Fed's 2% target, she said. Recent inflation readings have put her on high alert for that possibility, she added, though it is not her baseline expectation.

Most Fed officials expect to cut rates three times this year, according to projections from last month's meeting. But the timing for the first of those cuts is incredibly uncertain given inflation is still above 2% and the labor market is remarkably strong. That's why officials aren't in a rush to cut rates.

On Thursday, Minneapolis Fed President Neel Kashkari rattled US markets when he said: "If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all." However, he still thinks the central bank will cut rates twice this year. Neither Kashkari nor Logan are voting members of the Fed's rate-setting committee this year.

Atlanta Fed President Raphael Bostic, who is a voting member, has said he believes the central bank should cut once this year.

Acting Labor Secretary Julie Su told CNN Friday that the March jobs report shows that the US is the “strongest economy in the world.”

“The president described it himself, it's the strongest economy in the world. And the numbers certainly tell that story,” Su said. “So the idea here is that overall a strong economy is good for everybody. But under President Biden's policies, they're especially good for working people and that's exactly what we want to see.”

The economy is a critical issue for the president as he seeks a second term. A new poll from the Wall Street Journal asked voters in the seven swing states who they think would best handle the economy, and former president Donald Trump leads Biden by double digits in all seven. 

Pressed on why Biden’s economic approval numbers have not improved along with the strong jobs numbers, Su said that it’s a sign that “we have more work to do.”

“I think that consumer sentiment is also changing, but we also take it as a sign that we have more work to do and will continue to do it until every American feels that sense of security that the president talks about. We want a good job not just to be a good paycheck, but also to provide some breathing room,” Su told CNN’s Sara Sidner.

The use of artificial intelligence will reduce the number of workers at thousands of companies over the next five years, according to a global survey of C-suite executives published Friday.

The wide-ranging poll of 2,000 executives, conducted by Swiss staffing firm Adecco Group in collaboration with research firm Oxford Economics, showed that 41% of them expect to employ fewer people because of the technology.

The survey’s results provide another indication of the potential for AI and generative AI — which can create original text, images and other content in response to prompts from users — to revolutionize employment and the way people work.

Read more here.