Big miss for headline NFP, but wage growth solid

• US adds just 103,000 jobs in March in smallest gain in six months

• The unemployment rate unchanged at 4.1%

• Wages rose 0.3% mom, 2.7% yoy

• Weak jobs report gives Fed more time to decide on rate hikes this year

US non-farm payrolls (NFP) come in much weaker than expected, showing 103,000 growths in March versus expectation of 189,000. Prior month’s figure was revised up from 313,000 to 326,000. While the government raised its estimate of new jobs created in February, it cut its estimate for January to 176,000 from 239,000. Although the number of new jobs created slowed sharply from February’s revised increase, the US added an average of 202,000 jobs a month in the first quarter. That’s still faster than the average gains in 2017 and 2016.

Unseasonably warm weather boosted employment in the late winter, but as a result some industries such as construction trimmed payrolls last month. Constructions firms shed 15,000 jobs one month after posting the biggest gain in 11 years. Retailers also eliminated 4,000 jobs. The strongest job gains took place in manufacturing, health care and white-collar businesses. Manufacturers stayed on a roll, adding 22,000 workers. Health-care providers also hired 22,000 people. Professional firms boosted employment by 33,000.

The unemployment rate remained unchanged at 4.1% as job gains matched growth in the labor force. The labor force participation rate was down a tick to 62.9%. Overall, participation in the labor force has been steady since early 2016. Wage growth accelerated in March, up 0.3% on the month. That left average hourly earnings up 2.7% year-on-year.

The unemployment rate clung to a 17-year low of 4.1% and it’s expected to go even lower in the months ahead.

The tight labor market is slowly pushing up worker pay. Hourly wages rose 8 cents, or 0.3%, to USD26.82 in March. The 12-month increase in pay edged up to 2.7% from 2.6%.

Weak jobs report gives Fed more time to decide on rate hikes this year

The weaker-than-expected March employment report will not dissuade Federal Reserve officials from raising interest rates at a gradual pace but obviates any need to signal any more aggressive posture. In March, the Fed’s dot plot targeted three rate hikes this year. Many economists ultimately expect the central bank to move four times this year but said there is no need to signal that now.

While some might be a bit disappointed by the modest headline hiring tally, we are inclined to discount it. Continued progress in wage growth should give the FOMC the green light to continue to raise rates at a gradual pace.

Following the publication of the March employment report, market participants were left with more questions than answers about the pace of the Fed’s policy tightening in the future. Overall, though, the latest NFP report was by no means a game changer. The Fed is still likely to raise interest rates at least two more times this year, but if inflation starts surprising to the upside there is certainly an upside risk to this view.

Source: BIMB Securities Research - 9 Apr 2018