April 6, 2018 / 12:56 PM / 20 days ago

Instant view: U.S. job gains smallest in six months, wage growth picks up

NEW YORK (Reuters) - The U.S. economy created the fewest jobs in six months in March as the boost from mild temperatures faded, but a pickup in wage gains pointed to a tightening labor market, which should allow the Federal Reserve to raise interest rates further this year.

March’s job growth of 103,000 was below the 193,000 forecast. Average hourly earnings rose 0.3 percent, above a consensus of 0.2 percent.

COMMENTS:

PAUL ASHWORTH, CHIEF U.S. ECONOMIST, CAPITAL ECONOMICS, TORONTO:

“The upshot is that even though March was weaker than we were expecting, there is still evidence of an acceleration in the underlying pace of employment growth. The Fed will be primarily focused on the 0.3 percent month-on-month increase in average hourly earnings, which pushed the annual growth rate up to 2.7 percent, from 2.6 percent. As with core inflation, the annual rate is still muted, but there is clear evidence of an acceleration over the past few months in the monthly gains. Overall, looking through the volatility, employment growth is trending higher and wage growth is starting to heat up.”

SEAN LYNCH, CO-HEAD OF GLOBAL EQUITY STRATEGY, WELLS FARGO INVESTMENT INSTITUTE, OMAHA NEBRASKA

“There’s nothing alarming. It’s a dangerous day for data to be released with the tariff news overnight and earnings coming up. But hourly earnings seem to be in line - up a little but not a break away. We’re not seeing a meaningful slowing in jobs.”

“It’s a little below expectations but on the heels of a strong February, and February was revised higher, it’s a little reversion to the mean and evening out the strong February data.”

“We get a couple of back to back months of weaker reports and that starts to send some signals to the market. I don’t think anything out of this will sway the market. They’ll go back to focusing on tariffs. That’s the big news today. That may continue through next week until we get the earnings reports then folks may focus on the fundamentals again.”

“That’s not showing us wage inflation where the Fed would have to step in. This seems to be a natural improvement. The wage number is important and as important as the jobs number but this month it isn’t causing us too much concern.”

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON

“Certainly the headline came in a little light and January and February were quite strong and have been revised a bit lower. Still, those numbers were much better than expected, the unemployment rate stuck at 4.1 percent, that’s been a number of months in a row. And average hourly earnings, which is the figure that’s most important to these reports these days, ticked up a little bit but not anything that would spook the market in terms of wage inflation.

“I don’t know that this report will change the Fed’s thinking for their current path of rate hikes this year. What’s happened here this morning is certainly the jobs report is taking a back seat to the trade discussion and back and forth between the U.S. and China, as we know Trump again, think of it as a game of poke and he’s raising the stakes a little bit. That’s primarily moving markets and the jobs report is a bit of an afterthought. But that said, the jobs report indicates an economy that continues to add jobs with a low unemployment rate without much in the way of wage gains and that isn’t likely to impact the Fed’s direction all that much.”

AARON KOHLI, INTEREST RATE STRATEGIST, BMO CAPITAL MARKETS, NEW YORK

“It was a bit of a mixed read. Average hourly earnings were up in line with consensus, that’s probably positive. There is maybe a little bit of a seasonal effect there, we didn’t see a big drop off in hours worked, that’s a positive sign as well that the gains were real, they weren’t just optical because of a drop in the amount of time that employees were at work. The disappointing parts of the report, aside from the headline, which could have been a bit of a payback from last month’s outperformance, was really the drop in the participation rate and the lack of a drop in the unemployment rate. I think it’s those combinations that made this a disappointing report, but just slightly so.”

“It seems that there is some risk that you’ll move from political rhetoric to an actual fully blown trade war. I think if that happens you’re likely to see many more instances of spot inflation, where you have prices rising due to shortages, but not necessarily for what we’d call the right reasons, which is that demand is very strong. So the issues with it are essentially that it forces the Fed into a posture where they have to be more aggressive just to fight inflation and at the same time it depresses long term global economic output.”

JOSEPH LAVORGNA, CHIEF ECONOMIST, AMERICAS, NATIXIS, NEW YORK

“It’s definitely a little bit softer than expected, the job number and then the downward revision, the fact the unemployment rate didn’t fall. To me that’s all on the softer side of things. The job weakness is broad-based, the general trend is still decent, you’re generating 202,000 (jobs) on the three-month moving average.

“The economy’s still good, the issue is what happens in June and is the Fed going to move in June. I do not see any evidence of the economy overheating, and therefore I believe the Fed should allow the economy to run hot which would argue for less hikes, not more hikes. While we focus so much on the trade issues and that’s been the dominant news of the last few weeks, to me investors are missing sight of the bigger picture which is the tightening of monetary policy, which is lifting the risk-free rate and the fact liquidity is coming out of the market, and that to me is the real story.”

GUY LEBAS, CHIEF FIXED INCOME STRATEGIST, JANNEY MONTGOMERY SCOTT, PHILADELPHIA:

“The headline payroll numbers were all weak, while hourly earnings were about in line with expectations.  Knee-jerk reaction was buying in the rates markets, but the size of the buying wasn’t that significant. There are two reasons for the relatively quiet reaction: one, there’s an easy excuse for weakness in the bout of winter weather that hit during payrolls data collection week.  Two, there’s more attention being paid to the tariff situation, including a briefing on the matter from Chinese officials immediately after the payrolls data release.”

MARKET REACTION:

STOCKS: Stocks added to losses, but then pared losses, with S&P futures last down 0.7 percent.

BONDS: Benchmark yields fell, then retraced, with the ten-year last at 2.8137.FOREX: The dollar fell, then rebounded, with the dollar index against a basket of currencies .DXY last trading flat.

Americas Economics and Markets Desk; +1-646 223-6300

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