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Last month’s job report was a remarkable one. A total of 295,000 jobs were created in February, well ahead of estimates. This month, the expectation is for 247,000 jobs to be created, with the unemployment rate holding steady at 5.5%, close to the ‘full employment’ level of 5%.
A recent speech from Janet Yellen, chairman of the Federal Reserve, signaled that the Fed would begin raising rates later this year, but that continued improvement in the labour market would be an important figure. This week has already had plenty of news about US jobs, but the figures have not been encouraging.
We have seen the US ISM manufacturing PMI figures come in during the course of the Wednesday afternoon session. The headline number was weaker than expected, at 51.5 versus 52.5, but the real shocker was the employment subcomponent, which fell to 50 from 51.4. This particularly worrying number, combined with an ADP figure that was well below expectations at 189,000 instead of the forecast 227,000, signals that we might have seen the end of the steady improvement in the US economy.
This is not to suggest things are getting worse, merely that they might be levelling off after months of improvement. Inevitably a trend comes to an end, or at least slows down, and that is what may be happening now. The post-war period has seen two runs of job creation of 200,000 or more per month, 14 months in 1976-77 and 15 in 1983-84, with the upcoming number making it 13 for the current trend if it does stand above 200,000.
For equity bulls, this may not be a bad thing however. Job numbers were one of the key strong points of the US economy and the one area that really pointed to the need for a rate hike. If this part of the economy turns south then the Fed could become noticeably more dovish in the April meeting, or at least note the poorer figures. This in turn could stifle the USD rally, at least for a couple of months until the magic June meeting arrives.