US employment situation — is the trend at an end?

The next set of non-farm payrolls arrive on Friday. Given the consistent increases in employment in recent months, what impact will this release have?

JOBS banner on building
Source: Bloomberg

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. 

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.