The job market remained healthy in March amid concerns it is poised to slow. The Bureau of Labor Statistics (BLS) reported that the U.S. economy generated 228,000 nonfarm jobs in March, well above our forecast of 125,000 and the consensus of 135,000. February's payrolls were revised lower by 34,000 and January by 14,000. The March result and the overall revisions to past results reduced the three-month average to 152,000 from 200,000. This morning's numbers follow private reports earlier in the week. Outplacement specialist Challenger, Gray & Christmas reported that March 2025 job-cut announcements tripled to 275,240 from March 2024 and jumped 60% from February 2025. Government cuts represented 80% of the March total. Payroll processor ADP reported faster-than-expected hiring, with 155,000 jobs added by the private sector. The March unemployment rate ticked up to 4.2%, which matched our estimate. Average hourly earnings increased nine cents month to month and are 3.8% higher year over year, below our estimate of 4.0% and the reading of 4.0% in February. The average workweek remained at 34.2 hours, a tick above our estimate. Employment increased in healthcare; social assistance; transportation and warehousing; and retail trade. Employment showed little change in other major industries, including mining, quarrying, and oil and gas extraction; construction; manufacturing; wholesale trade; information; financial activities; professional and business services; leisure and hospitality; and other services. The manufacturing sector added 1,000 jobs. Healthcare added 77,800, while federal government employment fell by 4,000. After the report, stock futures improved slightly but are still deeply in the red on tariff worries. The yield on the 10-year Treasury rose by four basis points to 3.94%. Futures contracts suggested a 57% probability that the Fed will maintain the 4.25%-4.5% funds target on May 7, little changed from before the report. Both before and after the report, traders saw a 100% probability that the Fed will cut the policy target in June.

Despite bursts of outperformance, small- and mid-cap stocks (SMID) have underperformed large-caps year to date -- as they have over the past five years. But they may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the trade and tariff debate, or fallout from unrest in the Middle East, the Russian invasion of Ukraine, issues in China, or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. Finally, there are long stretches in the record books when SMID stocks have outperformed large-caps. SMID stocks can be risky, but despite those risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 20% of the U.S. stock market's capitalization is comprised of SMID stocks.

This morning's release from the Bureau of Economic Analysis (BEA) will be the third, and final, update of 4Q GDP. The update last month indicated 4Q real GDP rose at an annualized 2.3% pace, a slight deceleration from 3.1% growth in 3Q. The all-important consumer economy remained very strong through the holidays, which provides a tough comparison for 1Q. Consumer spending, designated as Personal Consumption Expenditures (PCE) in the GDP report, rose 4.2% and contributed 2.79 percentage points of the 2.3% growth in 4Q GDP. Private domestic investment subtracted 1.05 points, contracting 5.7%, with equipment down 9.0% against 10.8% growth in 3Q. We don't expect a major revision to 4Q GDP this morning. Between 1999 and 2023, the average absolute revision to the quarterly percentage change in real GDP was just 30 basis points, according to the BEA. PCE was boosted by the huge services component, which was up a solid 3.3% on top of 2.8% growth in 3Q24. Consumer spending on goods rose 6.1%. Within goods, durables were up 12.1%, which shows no hint of recession, and nondurables were up 3.0%. Residential fixed investment rose 5.4% in 4Q. We expect approximately 1.1% growth in 1Q25. Government consumption and expenditures were up 2.9%, with the federal government up 4.0%, and state and local government up 2.2%. National Defense posted 4.7% growth, extending a 13.9% gain in 3Q. On April 30, the BEA will release its advance estimate for 1Q25 GDP. We expect 1Q24 growth of 1.6%. The consumer services category (which represents 47% of GDP) is an important component of our forecast for 1Q and for 2% growth in 2025. It is normally a stable category amid elevated uncertainty on tariffs and falling consumer confidence. It includes hard-to-avoid expenses such as rent, utilities, healthcare, and insurance. The ISM Services Index showed expansion for an eighth consecutive month in February and has indicated expansion in 54 of the last 57 months.

With more than 20,000 locations, Dollar General’s banner is nearly ubiquitous across the rural United States. Dollar General serves as a convenient shopping destination for fill-in store trips, with its value proposition most relevant to consumers in small communities with a dearth of shopping options. The retailer operates a frugal store of about 7,500 square feet and primarily offers an assortment of branded and private-label consumable items (80% of net sales) such as paper and cleaning products, packaged food, and health and beauty items at low prices. Dollar General also offers a limited assortment of seasonal merchandise, home products, and apparel. The firm sells most items at a price point of $10 or less.