US NFP: Not so bad after all - Natixis

Thomas Julien, Research Analyst at Natixis, explains that the US employment gains were much weaker than expected in March (+98K versus +180K expected) but most of this slowdown is probably attributable to weather conditions (favorable in February but negative in March) with a sharp slowdown of job gains in weather sensitive sectors (construction for example).

Key Quotes

“Meanwhile, the unemployment rate (with a stable participation rate) as well as the underemployment rate dipped to their lowest levels in 10 years. Wages were in line with expectations. In short, nothing to worry about and after all report is a good one!”

“Nonfarm payrolls rose by 98K in March (after 219K in February, revised downward), much below expectations (consensus: +180K) and ours (Natixis: +190K). The 3 month average in job creations decelerated from +197K to +178K in February. We attribute most of this slowdown to weather conditions that were supportive in February and negative in March (with a snowstorm during the reference period): employment weakened in sectors that are more likely to be sensitive to weather conditions (construction, transports, leisure…).”

“On the other hand, details of the household survey were very positive: the unemployment rate lost 0.2pts to 4.5% with a stabilization in the participation rate (at 63.0%). This was the lowest level since 2007. The underemployment rate (U6) also decreased, losing 0.3pts to 8.9% (below its long term level).”

“Faster wages: Average hourly earnings rose in line with expectations and continued to increase at a hefty pace on a yearly basis (2.7%).” 

“In short, it is always hard for forecasters to estimate the impact of weather conditions on employment numbers. It appears that employment was growing above trend in the past few months (due to favorable conditions) and was pulled back in March for the opposite reason. We find the weather argument compelling as the deceleration in job gains was visible in sectors that are likely to be weather sensitive. The recent evolution in initial jobless claims is consistent with this story and suggests that labor market conditions remains good. Therefore, it may be worth shifting the focus away from NFP and recognize that the unemployment rate is now below its long term level. Today’s number does not change anything for the Fed in the very short run (no hike is expected in May) but may imply a higher probability of tightening in June.”