What To Expect From US NFP

Setting the scene
What we expect to happen
What this means for the markets


  • While the monthly jobs report is routinely among the most important high-frequency releases, the March reading will be particularly significant given the acute market focus on whether the FED is at risk of falling behind the curve in terms of policy normalisation.
Setting the scene

  • With the unemployment rate flirting with levels matching the lows of the 1990s cycle and labor conditions posed to tighten further this year, firmer wage pressures are likely to finally materialise more appreciably.
  • Wage pressures are picking up, as reflected in the gradually accelerating uptrend in the Employment Cost Index, as increased labour scarcity boosts wages. Philips Curve, inverse relation between unemployment and inflation in full swing. Businesses will now focus on productivity enhancing investments and productivity growth will gradually accelerate closer to its historical norms of 2%-2.25%.
What we expect to happen
  • Any forecast bias for March? Consider six and twelve month moving averages for March.
  • Look at ADP for March, what is the forecast bias, does it tend to underestimate official payroll gain in March?
  • Private companies added 241000 positions (ADP) in March as employment in construction and manufacturing surged, well ahead of Wall Street estimates for 205000 growth. On a YoY basis, March 2018 ADP nearly doubled the 122000 totals from the previous year.
  • Ahead of Friday’s NFP, Wall Street is looking for growth of about 185000 and a decline in the unemployment rate to 4% from 4.1%.
  • The private payroll number adds upside potential to Friday’s NFP. We expect NFP to surpass expectations.
  • However, both ISM surveys eased from impressively robust results earlier in the quarter, albeit in a modest manner. However Q1 average of ISM headline at 59.4 was the strongest quarterly result in the history of the series.
What this means for the markets
  • FED’s dot plot more hawkish than meets the eye.
  • Average hourly earnings important, talk about how this data for February trumped NFP figures. Other focus for market participants remains on the unemployment rate and the pace of gains in average hourly earnings
  • The new ‘dot plot’ released after March’s FOMC meeting shows between two and three further 25bp rate hikes this year: the media end-2018 dot stands at 2.125%, consistent with two further rate increases while the average dot rose by 20bp to 2.2%, suggesting that risks are skewed towards three.
  • Economic projections submitted by the 15 FOMC members showed a further upgrade to real GDP trajectory, expected to expand this year and next by about 1.5% above its estimated trend rate, pushing down the unemployment rate too.
  • Consistent with the greater confidence over the medium-term economic outlook and a build-up of inflationary pressures, the FOMC now see scope for a more prolonged tightening cycle. Powell reassured investors that Trump’s fiscal expansion had boosted FOMC members’ confidence in their expectation of strong domestic demand ahead
  • Potential risk of US/China trade war. Tariffs and counter-tariffs has investors panicked and acts as a threat to US equity markets. However, escalating trade disputes between US and China are adding an unwelcome layer of uncertainty to an otherwise bright economic outlook.