Global News & Trade Ideas

Market Update: The US Economy Provides the Proof: Nonfarm employment surges in March

  • Nonfarm Payrolls soar 916,000, unemployment rate falls to 6%.
  • Job creation is the fastest since August 2020 and well beyond 647,000 forecast.
  • Leisure and hospitality adds 280,000, construction 110,000, manufacturing 53,000.
  • Revisions to January and February increase totals by 156,000.
  • Equities closed for Good Friday, yields and dollar modestly higher.

American businesses hired the most employees in seven months, as vaccinations and strong economic growth enabled a revival led by the long dormant leisure and hospitality sector.

Nonfarm Payrolls added 916,000 new workers in March, reported the Bureau of Labor Statistics on Friday, far ahead of the 647,000 consensus estimate. It was the largest monthly increase since1.58 million last August. Revisions to January and February added another 156,000 bringing the first quarter total to 1.617 million. 

Nonfarm Payrolls

The unemployment rate(U-3) fell to 6% from 6.2% and the more broadly based underemployment rate dropped to 10.7% from 11.1%.  

 Employment gains were widespread with the most encouraging sign the 280,000 positions in the hotel and travel industry, one of the hardest hit by the lockdowns and subsequent social restrictions. Bars and restaurants, probably the second most-damaged sector, added 176,000. Construction jobs rose 110,000 after 56,000 weather related losses in February. Manufacturing work jumped by 53,000 making concrete the strong PMI employment figures released yesterday. Retail jobs climbed 23,000 following February’s addition of 28,000. 

Bureau of Labor Statistics

With schools in most of the country open for actual as opposed to virtual instruction, education employment at all levels, local, state and private jumped 190,000. 

Workers continued to return to the labor force, with an additional 347,000 in March bringing the participation rate 0.1% higher to 61.4%. It was 63.3% in February 2020. 

Market response

Equity markets were closed for the Good Friday holiday. Reaction in the credit and currency markets were muted. The yield on the benchmark 10-year Treasury rose three basis points to 1.714%. 

Dollar rates were slightly higher. The EUR/USD slipped from 1.1777  to 1.1763, the USD/JPY rose seven points to 110.68, the sterling shed two points to 1.3831 and the USD/CAD opened at 1.2547 and finished at 1.2575. . 

Lockdowns and GDP

The economic lockdowns of March and April last year threw 22.362 million people into the unemployment lines. From May 2020 through March 13.959 million, 62.4%, have been rehired or have found new jobs.  At the first quarter hiring rate it would take 5.2 months to find work for the remaining 8.403 million original layoffs. 

Economic growth is expected to accelerate in the first quarter from 4.2% in the final three months of 2020. The Atlanta Fed GDPNow model raised its running estimate to 6% annualized after the April 1 Manufacturing ISM report for March. The Federal Reserve consensus for 2021 was 6.5% in the March Projection Materials up from 4.2% in the December reading.


Manufacturing PMI

The Purchasing Managers’ Index from the Institute for Supply Management registered 64.7 in March for the highest reading since December 1983. The increase may partially reflect a recovery from February’s harsh winter weather in the central part of the country which temporarily closed a number of oil refineries and petrochemical plants in Texas and Louisiana. The New Orders Index in March had the highest nine-month average in 17 years. 


Inflation and stimulus

The exceptional employment gains in the first quarter, combined with the expected rapid acceleration in economic growth and the unprecedented level of stimulus spending from Washington, $3 trillion in the last two packages and the Biden administration’s proposed $3 trillion infrastructure bill, has excited inflation concerns. Federal Reserve officials have said repeatedly that they expect any increases to be temporary.  

The Fed has also adopted inflation averaging as its price policy, which lets increases run beyond the 2% target for a period before the governors would consider a rate increase. 

The central bank is currently buying $120 billion a month in Treasuries and mortgage backed bonds, mostly in the short end of the yield curve. 

The 2-year Treasury yield has risen six basis points this year to 0.186 on Friday.

In contrast the 10-year yield, which is the reference for many commercial rates, has added 80 points to 1.714%.