Another strong jobs report raises more questions about inflation and interest rate hikes

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• Geoff Bennett:

  Welcome to the "NewsHour."

  The U.S. economy again created more jobs than expected last month, 311,000. The unemployment rate also ticked up to 3.6 percent, but that came as the labor force participation rate improved and more than 400,000 workers jumped back into the work force.

  President Biden made note of that after the report came out this morning.

  Joe Biden, President of the United States: The part that pleased me the most about the report, the jobs report, is, people who've been staying out of the job market are moving back in, beginning to move back in. Jobs are available. People are working again. They're becoming more optimistic about their future.

• Geoff Bennett:

  Wage increases slowed down, but job growth remains strong overall.

  Julia Coronado is the president and founder of the firm MacroPolicy Perspectives. She's a former economist for the Federal Reserve and a professor at the University of Texas, Austin.

  Thank you for being with us.

• Julia Coronado, MacroPolicy Perspectives:

  My pleasure.

• Geoff Bennett:

  So, we have a strong jobs report for February. The U.S. added 311,000 jobs last month.

  President Biden said this morning that our economy is moving in the right direction. Is that the entire story?

• Julia Coronado:

  Well, the report is a little bit of a Goldilocks report.

  We — as you mentioned, very strong job gains, stronger than expected, but not a lot of signs of inflation pressures from those jobs, in part because we did see participation rise. We know that some good things are happening on the supply side of the labor market. Immigration flows have improved. We're working through backlogs of visas and bringing people in. And people are returning to the labor force.

  So, that is bringing supply and demand into better balance, and, therefore, wage growth did ease back a little bit. And for the Federal Reserve, that is certainly what they are looking for in determining how fast and how high to take interest rates.

• Geoff Bennett:

  A question about that, because the U.S. economy, looking back at the last three jobs reports, has averaged 350,000 jobs a month for the last three months, good news for the economy, great news for Americans.

  But that could be read potentially as bad news for the Fed, which is trying to tame inflation. Or is it bad news?

• Julia Coronado:

  Well, it could be, potentially.

  But, again, if you look over those same three months, the unemployment rate, first, it ticked down and then it ticked back up. So we have been basically steady at 4.6 percent — 3.6 percent unemployment rate over that same period.

  So, that's a low unemployment rate. We're not quite at the 50-year lows we were last month. But we're not seeing — again, because there's better supply of workers, more people returning to the work force, better population growth dynamics from immigration, that means that those demand for workers are being met, without tightening the labor market further.

  So it's a delicate balance. It's — by any metric, it's a strong job market, which is good for the economy. But we are at a very high rate of inflation that the Fed wants to bring down. So they would like to see further cooling in the job market, which this report isn't a cooling outright, but it is a — like, sort of a very healthy balance of strong jobs, but also strong engagement to meet those jobs.

• Geoff Bennett:

  Julia, I want to ask you about what happened today with financial regulators closing Silicon Valley Bank. This is a major lender to start-ups. This is the largest U.S. bank failure since the financial crisis more than a decade ago.

  What contributed to that collapse, and how is it connected, if at all, to the broader economy?

• Julia Coronado:

  So there were, of course, some circumstances for this bank, which was focused on serving the tech sector, which we know is having a hard time right now. It's the sector that's probably contracting the most.

  So they had exposure to that sector. But it's also a reflection, just more generally, of the impact of higher interest rates on the banking system. Higher interest rates are — require — it does bring pressures on the bank's portfolio. What that produced in this case was a run on deposits.

  And so it's both a unique situation, but also one that does highlight that higher interest rates over time constrain the financial sector, constrain credit availability. And this was just a particularly adverse event. But we saw — in the markets, we saw contagion to the broader banking sector and the broader stock market, because there is pain to come in the financial sector.

  The financial sector is adjusting to the reality of higher interest rates.

• Geoff Bennett:

  I had to brace myself a bit when you use that word contagion.

• Julia Coronado:

  Yes.

• Geoff Bennett:

  Because how concerned should we be about the — about the ripple effect and about the overall health of the banking sector?

• Julia Coronado:

  So I think the biggest concern in the banking sector is not sort of the big banks that are in very good shape, well-capitalized, lots of liquidity.

  It's the smaller banks, like this bank, and other midsize, smaller banks that really do rely on deposits as their funding base. And if deposits turn out to be a little bit more skittish, a little bit more prone to flight, then they're going to have to manage their risks and manage their liabilities very carefully.

  So, I think the vulnerabilities in the banking sector really lie amongst the smaller and midsize banks. And there is concern. There is some concern that rates have gone up so far, so fast that it's a shock to the system that might ripple into other, again, midsized banking institutions.

• Geoff Bennett:

  Julia Coronado is with MacroPolicy Perspectives.

  A real pleasure to speak with you. Thanks for your time and for your insights.

• Julia Coronado:

  My pleasure.