US Employment report sturdier than we expected

Mads Koefoed, Market Strategist, Saxo Bank

All eyes were on the US labour market report released earlier today and it duly delivered a whole host of data for everybody to analyse over the weekend. Payrolls increased 162,000 (Saxo: 140,000, consensus: 184,000) while the unemployment rate remained at 9.7% (Saxo: 9.7%, consensus: 9.7%). That may not signal a very sturdy report considering the temporary gains from Census hiring and snowstorms, but if we dig deeper things look better than we had expected – though that is really not saying much.

The positives:

·         Nonfarm Payrolls rose (substantially) for the first time in more than two years... and Census hiring did not have as large an impact as expected. Only 48,000 were hired by the Census; much lower than the 100,000 that we expected. This means that 92,000 payrolls are due to improvements in the economy - though other government jobs and gains from the February snowstorms can still affect this number.

·         The unemployment rate remained at 9.7% while the not seasonally adjusted rate fell again – this time to 10.2%.

·         Weekly hours are up more than expected to 34.0 from 33.9 (February’s number was revised up from 33.8).

·         Manufacturing payrolls are up for the second time in a row; this time by a more solid 17,000. This, however, is in contrast to the ADP Employment report, which a couple of days ago reported that the manufacturing sector shed 9,000 jobs while the goods industry lost 51,000.

·         The participation rate increased for the second month in a row and now stands at 64.8%.

·         Temporary help services increased for the sixth month in a row; this time by 40,000 and up by 313,000 since the trough in September. This is often a good leading indicator of future permanent hiring as companies hire easy-to-fire employees until they are sure of the business outlook.

·         Both January and February payroll numbers were revised up by a cumulative 62,000. January even turned positive.

The negative:

·         The unemployment rate remained at 9.7%. We will have a low Fed Funds Rate (FFR) for a long time; this report does not change our belief in that regard.

·         Hourly wages are down 0.1% following an increase of 0.2% in February. Wage (disinflation/) deflation is still going on. Personal income did not move anywhere in February and today’s report suggests that the same will be the case in March. Stated differently, any consumption growth we may see in March will most likely be financed by transfer payments and a lower savings rate – just like in February.

·         The underemployment rate (the real unemployment rate if you will) increased 0.1%-point to 16.9%.

·         Temporary services increased and could quite simply remain high because companies are well aware that the present recovery is not like anything seen before. Indeed, as we keep coming back to in our Macro Forecasts and elsewhere, there are still many problems that lurk on the horizon for the US economy.

·         The number of people working part-time who preferred full-time work increased to 9.1 million.

·         The number of long-term unemployed continues its relentless increase and is now at 44.1%, up from 40.9%. In other words, 44.1% of all unemployed workers have been so for 27 weeks or more.

Overall the internals of the report were somewhat better than we expected, but we still expect the recovery in the labour market to be long and bumpy. Next up is ISM Non-manufacturing and Pending Home Sales on Monday at 14:00 GMT.