- Current month preview (click to enlarge)
The unemployment (U3) and the participation rates are forecast to remain steady at 4.7% and 63% respectively. The markets will also be eyeing the average hourly earnings which is predicted to rise to 0.2% m/m. The underemployment rate (U6), a FED favorite in gauging labor market slack, should continue its downward trajectory back to levels not seen since BEFORE the great recession. (click to enlarge)
- Last month review
Non-farm payrolls shattered expectations again posting robust gains of +235k in February aided greatly by strength in private and manufacturing sectors. The unemployment rate fell back to 4.7% even as labor force participation increased. Average hourly earnings rebounded to 0.2% m/m pushing annualized wage growth, after prior month upward revisions, back to 2.8%. This was a very strong report that depicted a labor market near full employment, solid consumer spending and economic expansion that would need a proactive FED. Apparently the august body agreed as they raised the FED FUNDS rate by 0.25% (range: 0.75% to 1.00%) on March 15, 2017.
- Why is it relevant?
While the FOMC did act, hiking rates on the Ides of March, they did NOT signal an acceleration to the tightening process for the remainder of 2017 and beyond. The dot plot of rate projections, a guidepost of sorts to the committee's thinking, remained as is implying that the FOMC will lean dovish until there is more clarity and confidence in the current regimes competence. While the headline numbers will garner the most attention, the key might well lie in the "secondary" data namely earnings growth and participation rate figures. An economy at or near full employment should see the pace of wage growth surge which, in turn, should buoy consumer spending further. If there is evidence of this then the US dollar, which had a desultory first quarter after the Trump-inspired rally ran out of steam, could benefit and resume its upward trajectory. Conversely, a lack of follow through on the wage front could very well see the greenback confined to its recently defined ranges. (click to enlarge)
The FED cannot afford to be viewed as being "behind the curve" as that would greatly undermine their credibility. Another positive report trouncing expectations would surely intensify pressure to the point where they might not have a choice but to escalate monetary policy to neutral from its current "slightly accommodative" state even if the political landscape remains discombobulated.