Friday’s soft labor market data indicated that the US economy is now flirting with a recession, as a very reliable measure of change in the unemployment rate approached levels consistent with previous economic slowdowns. The bond market’s focus was on the rise in that rate to 3.9%, up from 3.4% in January of this year.
Other components of the monthly labor market release were similarly worrisome, as US payrolls increased by 150,000, which was less than forecast. Meanwhile, the prior two months of payroll gains were revised lower by 101,000. Employers also showed a lower demand for labor, as the average number of hours worked declined from 34.4 to 34.3 hours.
Taken as a whole, the data is consistent with the Fed’s goal of slowing the economy and maintaining overnight rates at their current levels. However, bond markets are also sending longer-term rates lower on the expectation that an economic slowdown will lead the Fed to cut rates sooner rather than later.