The gain of only 126K jobs in March is a bitter disappointment. Coupled with downwards revisions of 69K makes it worse.
We are finally seeing the labor market catching up with the dismal economy. Is this enough for a change of course for the US dollar? Or just an extension of the correction? Or in a different manner: is the dollar about to lose its “cleanest shirt in the dirty pile” status?
Economic weakness outside the Fed mandates
For quite a long time, many US economic indicators disappointed: durable goods orders stood out with a streak of disappointment, casting worries about future economic growth. Also the manufacturing figures, such as the Chicago PMI, factory orders and the ISM manufacturing PMI were on the downside.
Nevertheless, on the two main fronts of the Fed, things were looking good. Inflation actually ticked up in both the Core CPI and the Core PCE Price Index, which matters even more to the Fed. This is one of the Fed’s mandates.
The second mandate of the Fed is employment, and here things were looking great: a blockbuster NFP after another. The last one, published on March 6th showed a gain of nearly 300K before revisions.
Also the weekly jobless claims were looking better, with consecutive downfalls in recent weeks. The miss on ADP served as a warning sign, but it wasn’t close to this miss.
Until Now
A gain of only 129K private sector jobs and 126K in total is very disappointing, and so are the downwards revisions worth 69K. The weather can be easily blamed for the revisions: January and February are winter months.
But the bigger disappointment came from March, that already featured good weather. In addition, the US experienced a worse winter last year. Wasn’t the economy supposed to be stronger and more prepared for such a downturn?
The report may be shrugged off as a one-off. After all, the world’s largest economy enjoyed 12 months of +200K jobs gained per month, in the best series since the 90s. One report is not telling about the economy. The report also featured a stronger than expected monthly gain in wages: +0.3%. So, it looks a bit weird in general.
State of the Fed
We’ll only know if this was a one-off in early May, when we get the next jobs report. For now, the picture does not look pretty.
The Fed convenes later this month. They will already have the first read of Q1 GDP growth on their desks, but not the fresh jobs report. With what we know now about growth in Q1 and about jobs, the Fed could send a more dovish message.
The US dollar does not wait for the Fed and is already reacting, with EUR/USD topping 1.10.
But what will you buy?
But yet again, even if the US economy doesn’t look so good, what else will you buy? The ECB has its leg on the QE pedal, election uncertainty looms in the UK, the BOJ is failing to create inflation, another rate cut is due in Australia and the Iran deal does not bode well for the C$.
How will markets react next?
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