March payrolls – an overview

The March payrolls came in largely on-consensus at 215,000 vs. 210,000 expectations with prior two months revision at -1,000.  Market participants welcomed the uptick in unemployment rate to 5.0% from 4.9% as labor market participation rate rose again to 63.0% vs. 62.9% prior, and prime age participation rate rose to 81.4% (last seen in 2012)

Additionally, average hourly earnings beat expectations at 0.276% MoM vs. 0.2% consensus, even though the year-over-year figure dipped slightly to 2.252% vs. 2.258% prior.  Long-term (27 weeks and over) unemployment as a percent of unemployed mostly unchanged at 26.6% vs. 26.7% prior

Unfortunately, the positive readings were accompanied by a slight increase in involuntary part-time employment.  Part-time workers for economic reasons as a percent of labor force rose to 3.844% vs. 3.769% prior.

Overall, this is another decent payrolls report, and the sustained gains in participation rate would boost less-dovish policymakers’ call for a rate path that is steeper than currently priced by market participants.  This would further widen the divide between Chair Yellen, her allies at the Board of Governors, President Dudley, versus several other Federal Reserve Bank Presidents (namely the centrist Atlanta Fed President Lockhart, who is open to another rate rise at the April FOMC).

Long-term unemployed dipped a touch to 26.6% vs. 26.7% prior

Labor market sub-sectors

Within the establishment survey, construction posted further gains.  Retail trade and health care payrolls also improved.

Job growth within the highly watched mining and logging sector remain tepid, and the oil and gas extraction sub-component declined on a year-over-year basis in March

Market reactions

Dollar staged a strong rally in response to the payrolls print and the above-consensus ISM Manufacturing data, but the rally faltered into the session close to finish largely unchanged vs. overnight levels

Similarly, the 5s30s curve (FV vs. WN futures shown below) erased some of the post-NFP flattening

Fed funds futures also recovered losses into the close.  Markets are pricing in 4/5 of a hike following the NFP vs. 3/4 of a hike prior:

The likely source of rates strength was another decline in crude (lower crude also raise expectations of less-hawkish Fed policy).  Interestingly, crude stayed at session lows despite a reversal in dollar strength.