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Fast Comment USEmployment disappoints

  1. Payrolls rise by 103,000 people in March; weaker than expected
  2. Unempoyment rate unchanged at 4.1%; wage growth picks up to 2.7% (2.6%)
  3. Weak report does not alter our outlook for three more Fed hikes this year
Much weaker employment than expected
If worries had begun to creep in about a possible loss of momentum in the US economy, they were somewhat vindicated by the weak outcome of the labour market report for March. Non-farm payrolls posted an increase in employment of just 103,000 people and the weak print was further amplified by a total net revision of -50,000 in the previous two months. It was to some extent expected that the progress of the labour market at some point would revert to a more sustainable pace, given the apparent late state of the business cycle, but the outcome was well below the consensus estimate of a 185,000 gain. The weak result might to some extent be a consequence of weather distortions, as especially construction employment disappointed, with a drop of 15,000 people. However, according to BLS, the number of people unable to work due to bad weather was not markedly higher than the historical average for March and the weakness was broad-based within most sectors.
Unemployment rate stays unchanged
According to the household survey on which the unemployment figures are calculated, employment actually fell in March, following two months of stellar increases. A bigger fall in the labour force sent unemployment lower, but not enough to lower the unemployment rate from 4.1%. Thus, the participation rate inched back from 63% to 62.9%, painting a slightly less positive picture of the amount of slack in the labour market.
Wage growth picks up
Despite a weaker than expected performance by the labour market, wage growth picked up slightly, from 2.6% to 2.7%. However, that was as expected and is unlikely to cause warning bells to sound. The upshot is that the overall weak impression of today's report should not lead to renewed fears of more aggressive rate hikes by the Fed. Our view is still that the Fed will hike rates three more times this year, as we do not see the weaker employment growth in March as a harbinger of a more pronounced slowdown in the labour market and as the Fed likely will focus on the signs of an acceleration in the monthly gains in wages over recent months (it stood at 0.3% m-o-m in March). Markets will now anticipate remarks from Fed Chair Powell, who is expected to speak tonight at 19.00 CET; we do not expect him to fall back on the gradual tightening track he has been sporting since he took office.


Jes Asmussen

Chief Economist Denmark

Denmark and The Netherlands

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