It’s NFP week again, fellas! To help y’all make pips off this top-tier release on Friday 1:30 pm GMT, I’ve got a rundown of what happened before and what’s expected this time.
What happened last time?
- February employment change: 20K vs. 180K expected
- February jobless rate down from 4.0% to 3.8% vs. 3.9% consensus
- Average hourly earnings up by 0.4% vs. 0.3% forecast
- January employment change upgraded from 304K to 311K
- December 2018 employment change also revised from 222K to 227K
After a couple of months’ worth of stronger than expected NFP readings, traders had already been bracing themselves for a bit of a slowdown in February. Even so, the actual report still managed to disappoint as it showed a measly 20K increase in hiring for the month.
As it turned out, declines stemmed mostly from the weather-sensitive construction industry, churning out the weakest pace of overall job growth since September 2017. Other sectors like professional and business services, healthcare and wholesale trade employment carried on with strong gains.
The rest of the components of the NFP release weren’t all that bad, too. The unemployment rate ticked down from 4.0% to 3.8%, beating the consensus at 3.9%, although this was partly due to federal workers returning to work after the government shutdown.
Wage growth advanced, with average hourly earnings rising by 0.4% versus the 0.3% consensus and the earlier 0.1% uptick. On a year-over-year basis, this translates to a 3.4% increase, which is a plus for inflation and consumer spending.
It’s also worth noting that the readings for the past couple of months enjoyed small upgrades. In addition, a broader measure of unemployment, which includes people who have given up their job hunt and those working part-time because they cannot find full-time employment, dropped from 8.1% to 7.3% – it’s lowest reading since March 2001.
The Greenback had an initial bearish reaction to the report but managed to recover somewhat as traders got wind of the underlying components and realized that the labor situation wasn’t as bad as the headline reading implied.
However, the U.S. dollar continued to trend lower against the Kiwi for the rest of the session while the British pound seemed to have a life of its own as it sank deeper throughout the day.
What’s expected this time?
- March employment change to recover to 175K
- March unemployment rate to hold steady at 3.8%
- Average hourly earnings to post 0.2% uptick
Leading indicators are giving mixed signals. The ISM manufacturing PMI‘s employment component is up from 52.3 to 57.5 to reflect a stronger pace of growth. Also, the non-manufacturing version of the report has a jobs component that’s up from 55.2 to 55.9 to indicate a slightly faster pace of gains as well.
On the other hand, the ADP non-farm employment change figure turned out to be a disappointment. The reading is down from an upgraded 197K in February to 129K in March versus expectations of a 184K increase.
Although the ADP figure doesn’t exactly hit the mark when it comes to predicting the actual NFP reading, it’s worth noting that these two reports have been in sync lately when it comes to coming in above or below expectations.
In that case, could we be looking at a potential downside NFP surprise for March? If so, this would mark back-to-back misses and remind traders that the Fed is likely to sit on their hands for much longer, possibly spurring another leg lower for the Greenback.
On the flip side, an upside surprise could bring some hope that the U.S. economy ain’t doing so bad and could be poised for a rebound in the coming months. Of course, it might take a really really strong reading to shift market expectations like that.