The initial reaction to a gain of less than 100K was clearly a disappointment. However, some of the details in the report are encouraging. This allowed the US dollar to bounce back.
Here is a quick analysis of the key points related to the Non-Farm Payrolls report. There are many silver linings that eventually help the greenback recover and even make a comeback.
Here are the elements of the report.
The Good
- Wages continue rising at an elevated annual rate of 2.7%. This is lower than 2.8% seen in February but meets the pattern of “two step forward, one step backward” that we have seen with wages.
- Unemployment at 4.5%: Sure, the headline U-3 unemployment rate has been scrutinized for years, but it is still at the lowest in years. And the drop comes without a parallel drop in the participation rate, which is stable at 63%. Are we at full employment? Probably not. How low will it go? Even the Fed cannot provide a clear answer. This measure has been consistent at beating expectations.
- Underemployment going under: The U-6 unemployment rate represents a wider scale of people that are discontent. It includes those too discouraged to look for a job as well as those working part-time and want a full-time job. It dropped to 8.9% from 9.2%, a significant fall and quicker extension of the trade.
The Bad
- Job gains: Only 98K instead of 180K expected. No additional explanation is needed.
- Downward revisions: Remember that great gain of 235K seen last month? It is now only 219K. With an additional downgrade to January, total revisions total a loss of 38K.
The Ugly
- Lower workweek: If the drop in the underemployment rate is falling dramatically and implies a big improvement, the drop of the workweek to 34.3 could be an ominous sign. If the economy is getting closer to full employment, why are people working less every week? Perhaps it is a one-off, but it certainly is ugly.
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