US NFP: It's not all bad, watch Fed's Yellen next - ANZ

Con Williams, Rural Economist at ANZ, notes that following last Friday's US NFP report, the market is currently pricing Fed rate hikes of 13 bps for June, 26.5 bps for September and 34.5bps, adding that the early tone for the week will probably be set by Fed Chair Yellen’s address at the University of Michigan later on Monday.

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The March NFPs had some payback after unseasonably warm weather in January and February pushed monthly gains back above 200,000. The main weakness centred on construction, leisure & hospitality and retail. Over the first two months of the year, employment in these three
sectors increased by an average of 70,000 per month. In March, it fell by  15,000. The 3m average for NFP’s is 180k, which shows strong momentum for this stage of the US business cycle.

Despite the weakness in the NFP survey, the alternative household survey showed a bigger 472,000 increase in employment, with the labour force increasing by a more modest 154,000. As a result, the unemployment rate fell to a decade low of 4.5%. Average earnings were steady at 2.7% y/y.

The Fed won’t respond to one month’s data but next month’s report will be important in helping to shape expectations as to whether or not June is “live” for a rate rise. The market is currently priced at 13 bps for June, 26.5 bps for September and 34.5bps for December. The early tone for the week will probably be set by Fed Chair Yellen’s address at the University of Michigan tonight.