Non-farm payrolls preview: Reverse-weather impact to boost gains
• Reverse weather impact to boost NFP additions
• Bloomberg consensus for 200,000
• Bullish 225,000 could be on the cards
By Mads Koefoed
Bottom line: The US labour market woke up from its winter hiatus in March to such an extent that Non-farm payrolls are expected to have risen by 225,000. The unemployment rate has likely declined to 6.6 percent.
Details: The US labour market surprised to the upside in February with a net increase of payrolls of 175,000 (149,000 expected) following a couple of unsatisfactory months in December and January where payrolls only rose 84,000 and 129,000 respectively. As surprisingly positive as February may have been, it is the March report which will confirm the impression that spring has arrived.
Labour market data mixed: Initial jobless claims declined to 320,000 in March from 324,000 in February while claims for the actual Non-farm payrolls survey week dropped to 323,000 from 330,000 in the same week a month earlier. The ADP employment report also showed robust growth (in the private sector) of 191,000. Less inspiring were the two ISM reports, which printed 51.1 and 53.6 for the manufacturing and service sectors respectively though they still show expansion. Challenger job cuts dropped 30.2 percent year-on-year in March, according to a report yesterday, and the labour differential* was largely unchanged at minus 19.9 in March vs. minus 19 a month earlier, both of which represent improvement on the numbers in the recent six months.
Weather impact to turn positive: The colder-than-usual weather in the winter months left a clear mark on the labour market though February payrolls actually turned out to be quite robust, rising 175,000. I expect the 'weather effect' to reverse in the March employment report and provide an additional boost to payrolls. However, March itself was also quite cold, so the weather effect will only partly affect March and will also stretch into April as well.
Hours worked is traditionally impacted more by adverse weather and the weekly average declined to just 34.2 in February having stayed in the 34.4 to 34.5 range from September 2011 to November 2013. I expect a comeback to hours worked in March and April.
Overall, I view labour-related data as supportive of a payrolls gain of 200,000 in March, but judgmentally add 25,000 due to bad weather in previous months for a total of 225,000. I expect the unemployment rate to revert to 6.6 percent following the 0.1 percentage point uptick in February. Bloomberg's consensus is for a gain of 200,000 and an unemployment rate of 6.6 percent.
* The labour differential measures the difference between those surveyees saying that jobs are plentiful and those saying jobs are hard to get in the Conference Board's consumer confidence report.
Non-farm payrolls competition: It's that time of month again. You've seen Mads' prediction. Do you think you could do better? Write your guess for March's NFP in the comment section below.
Mads Koefoed is Saxo Bank's Head of Macro Strategy. Read more of Mads' analysis on our online copy trading platform.