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Friday, April 1, 2016

The ‘headline’ March non-farm payroll reading essentially matched estimates, with job gains of 215K vs. estimates of 213K and 245K in February (revised higher from the originally reported 242K read). The unemployment rate ticked up to 5% from 4.9% the month before, with the labor force participation rate ticking up to 63% from 62.9% the month before.

Revisions were modest, with net revisions for the prior two months of -1K. In other key pieces of the report, the average work week remained unchanged, while average hourly earnings started rising again after the prior month’s decline. Average hourly earnings increased +0.3% from the prior month’s level, a +2.3% year-over-year gain.

All in all, this is a good report, with earnings and participation going up, no major negative revisions and the uptick in the unemployment rate resulting from more folks getting back in the labor force. This reconfirms the recent dichotomy in economic readings, with the labor market steadily improving while other economic metrics showing renewed softness. What this means is that estimates of Q1 GDP growth have been coming down even though the labor market has been gaining ground.

The way I reconcile this seeming disconnect is that the recent data weakness is a function of seasonal softness that has become a recurring theme in recent years, but the economy overall is doing fine – not great, but not bad either. Parts of the economy are no doubt struggling, for example the factory space and the energy sector. We saw that in this morning’s jobs reading as well, with the manufacturing and mining sectors losing jobs.

What this means is that the Fed may be trying to make dovish noise, but they can’t run away from normalizing monetary policy. My sense is that they will have to raise rates in June and then after the November elections in the December meeting.  

Sheraz Mian
Director of Research

Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends report. If you want an email notification each time Sheraz Mian publishes a new article, please click here.
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