• Strong. Recession in residential construction, bankruptcies of mortgage lenders and an ongoing crisis at the Big 3 automakers ??“ the US labor market appears to be defying all adversity. In March, 180k new jobs were created. At the same time, the unemployment rate fell to an extremely low 4.4%.
• Turnaround. The labor market??™s heyday is, however, over. Ultimately, it is considered a lagging economic indicator. Additional strains are coming from the slowdown in investment activity: Investment activity does not replace jobs, it creates jobs. (cf. chart below and pages 2-4).
• Season. Furthermore, construction and real estate companies will not create any more new jobs. The gain in March was merely a technical reaction. Seasonal factors aggravate the problem. Normally, most jobs are created in the spring quarter. The markdowns for the seasonal adjustment are correspondingly high. For that reason alone, up to 300k jobs will be missing in the statistics over the next three months!
• Dilemma. That complicates the Fed??™s job even more. At the same time that the labor market is weakening in the future, inflationary pressure continues to build. The recent rise in import prices is a further warning signal. It is quite possible that the current decline in rate cut expectations will reverse again in spring. Ultimately, however, the Fed should hold its target rate steady this year.

Further topics:

• ECB: Press conference supports our expectation of further rate hikes (p. 5).
• France: Election outcome uncertain, far-reaching reforms unlikely (p. 7).
• Data outlook: ZEW growth expectations improve further; oil price increase drives US consumer prices higher (page 9).
• Market outlook: Stabilizing bond market, EUR-USD targeting its all-time high; ongoing carry trade boom a topic at the G-7 meeting (page 15).