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US NFP: Will Analysts Get It Right This Time?

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The release of US March NFP this time around is going to be unique for a couple of reasons. First, as a reminder, it’s happening on Easter Friday when markets are closed. Any potential reaction would have to wait until Monday’s Asian session, but there, too, several key markets are closed as well. Followed by most of Europe closed through the rest of the session. Even if there is cause for a strong reaction in the markets, the impact might take some time to be felt through the staggered opening of the markets.

Analysts have routinely underestimated the amount of jobs being created in the US economy. That has contributed to significant swings in the market in the past, as well as changed the outlook for what the Fed might do. Remember that last month’s surprise jobs number contributed to initial speculation the Fed would hike by 50bps before the implosion of regional banks. (It seems ages ago at this point.)

Understanding the distortion

US labor markets have been significantly distorted ever since the pandemic, which is contributing to the difficulty economists are having in predicting jobs numbers. The worrying aspect of that is that the same difficulty is likely being experienced by the Fed in deciding policy.

For a long time, the number of job openings has far exceeded the number of people looking for work. As we’ve pointed out previously, this means that even though people are finding work, it doesn’t mean more job opportunities are being created. In fact, according to the latest JOLTS report, the number of open jobs fell below double digits for the first time since the pandemic started to be resolved.

Beyond the headline figures

The BLS reported that the number of job openings decreased by 632K in February compared to a net gain of 331K employed positions. That means 301K job offers were rescinded without being filled. On the one hand, it implies labor tightness which worries the Fed. On the other hand, it implies that companies continue to cut back on hiring, but it’s still not reflected in the statistics, yet.

At the end of February there were 9.9M jobs open, but only 5.9M people looking for work. Around 4.0M people “cycled” their jobs – that is, quit to find a better one. What the figures imply is that there is a gap of 4.0M jobs that still need to be filled, which could imply that NFP continues to outperform even as job offers continue to be closed.

The figures to watch out for

The consensus is that March NFP will come in at 250K compared to 311K reported previously. The unemployment rate is expected to improve slightly to 3.5% from 3.6% prior, with the participation rate expected to remain steady.

As for the component that could worry the Fed, as higher wages imply inflation pressure, average hourly wages are expected to have increased at the same rate as last month at 0.2% monthly. That would still be below the inflation rate.

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