Ok, so the jobs report didn’t go so well.
We missed the mark. “Bigly.” Or, “big league.” Depending on which variation of the most popular of popular Trumpisms you prefer.
You already know the story. We were supposed to print 180K. Instead we printed 98K. Bummer.
The knee-jerk reaction was predictable on all fronts. Dollar down. 10Y yield plunged to a YTD low. The follow-on reaction was also predictable. BTFD. Mean reversion. You know. The usual.
Well, for those interested in Goldman’s take on what was definitely not a testament to the strength of the US economy, you can find it below. Word count “weather”: 7.
1. Nonfarm payroll employment increased by 98k in March – 82k below consensus forecasts – and job growth for earlier months was revised down by 38k. Based on industry data and household survey details, we believe severe winter weather accounted for roughly half of the deceleration, suggesting that underlying payrolls growth likely also softened in the month. Goods-producing industries added 28k jobs in the month compared to +96k in February, as a fourth consecutive rise in manufacturing employment (+11k) and fifth consecutive increase in mining and logging jobs (+11k) was accompanied by a sharp deceleration in construction employment (+6k vs. +59k in February) that we believe was largely driven by the effects of Winter Storm Stella in the Midwest and East Coast during the survey week. Employment growth in private service-providing industries also slowed sharply to 61k (compared to +125k in February and +153k in January), with the deceleration led by education and health services (+16k vs. +66k in February) and leisure and hospitality (+9k vs. +27k), the latter of which likely reflected weather effects. Retail employment declined 30k, likely reflecting a combination of severe weather and softening fundamentals. On the positive side, business services employment increased a solid 56k, up from 36k in February. Government payrolls rose 9k, and federal payrolls edged down 1k, probably due to the hiring freeze announced in late January. Our preferred aggregate of weather-sensitive industries (construction, retail, and leisure and hospitality) showed a 15k decline in payrolls this month following a 55k rise in February and +84k in January.
2. In contrast to the weaker establishment survey results, the household survey showed strong sequential job growth and a 0.2pt decline in the unemployment rate. The household measure of employment rose 472k (536k on a payroll survey-consistent basis), following a 447k rise in February and +458k in January (population-adjusted). The unemployment rate declined 0.2pt to 4.496% unrounded from 4.703% in February while the labor force participation rate held steady at 63.0%. The U6 rate declined by 0.3pt to 8.9%, a new cyclical low, as the number of workers on part-time schedules for economic reasons and “marginally attached” persons both fell. The measure of household employees not at work due to bad weather increased to 122k from 71k (SA by GS), a modest increase in the context of the data’s historical volatility. However, the number of workers forced to work part time on account of weather increased dramatically (1,805k from 239k). Overall, we believe the details of today’s report suggest a significant impact from weather, with the magnitude of the drag on March Payrolls at roughly 40-50k (or a 70k swing vs. February).
3. Average hourly earnings for all workers rose by 0.2% (mom) and were up 2.7% on a year-over-year basis, in line with consensus expectations. Our wage tracker—which distills signals from several wage measures—stands at +2.8% year-over-year in Q1, in line with Q4. Average weekly hours held steady at 34.3. The payrolls diffusion index – a measure of the percent of industries adding jobs during the month – declined to 58.0% from 66.9%.
4. Following this report, our March Current Activity Indicator stands at +3.6% (vs. +4.2% in February), down one tenth from the estimate prior to the employment report. The three month moving average stands at +3.7%. Given the sharp drop in the unemployment rate and an underlying pace of payrolls growth that is still strong enough to remove additional slack from the labor market, we increased our subjective probability that the next hike occurs at the June 2017 meeting from 60% to 70%. We now see the corresponding odds at 10% for July and 15% for September (down from 20% previously).