US March NFP Preview: Downside Miss Expected – TDS
Research Team at TDS, suggests that the March has a tendency to be a weaker month for nonfarm payrolls, as the creation of an average of 150K jobs over the last five years falls well short of the 200K+ average in both February and April.
“This dynamic is expected to be repeated this year, with a forecasted addition of just 182K jobs in March which is a step down from the 242K increase in the prior month. Much of the job gains should be centered in the pro-cyclical sectors such as professional services and retail, while government services should also add a respectable 12K jobs to the bottom line.
Employment in the manufacturing sector should decline modestly, falling a further 10K, while employment in the education sector should slow markedly from the unsustainable 86K jobs gained in January.
The unemployment rate should rise modestly, climbing to 5.0% from 4.9%, on account of weaker household employment performance. Wage growth should also be relatively weak, eking out a 0.1% m/m gain on account of the calendar effects that should again be unfavorable this month. Other indicators of labor market health such as aggregate hours worked should bounce back this month.
Risks to the forecast: Even with the relatively buoyant showing in the ADP employment report, we see downside risks our below-consensus call for a 182K gain in nonfarm payrolls. As noted earlier, the initial March payrolls report is notorious for underperforming both ADP and the consensus estimates. ADP has overestimated the March payrolls by an average of 70K in 3 of the last 4 years. Over this same period, the consensus estimate has overestimated the payrolls reading by an average of 79K. We expect this underperformance to persist this year.
Foreign Exchange: Downside risks to both payrolls and wages should leave the USD on a softer footing overall. Even if payrolls comes in line with estimates or better, we think it will be wages that will be the deciding factor in determining the lasting impact on the currency especially post-Yellen speech this week. Overall, we enter the payrolls release with a cautious/downside bias on the USD. Note that several crosses are key technical levels and extremes which elevates the potential for a broad repricing across currencies.”
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