{LONGTERMINVESTORS} Fwd: US: NFP print suprises on the upside; wage growth rebounds

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From: <research@icicibank.com>
Date: Sat, Apr 2, 2016 at 12:48 PM
Subject: US: NFP print suprises on the upside; wage growth rebounds
To: stockdesai@gmail.com

US Non-farm payrolls (NFP) rose higher than expected by 215K in March vs. prior revised print of 245K. Earnings growth turned positive at 0.3% MoM vs (-)0.1% MoM in February. However, unemployment rate edged up to 5.0% from 4.9% previously. Our assessment currently attaches a higher probability to a policy move in H2 2016. This is reinforced by dovish tone of the March policy and recent commentary by Fed Chair Yellen. US jobs data surprised sharply on the upside US non-farm payrolls (NFP) came in higher than expected, increasing by 215K in March. The February print was revised higher to 245K (from 242K earlier). However, the January print was revised down, taking the total January-February revisions to (-)1K. The less volatile three-month average NFP continued to remain firm above the 200K threshold at 209K (prior: 228K). Fig 1: March NFP came in above market expectations; however unemployment rate rose for the first time in a year Private sector proved to be the key laggard Decomposition of the payrolls data shows that private segment posted steep losses with both service-providing and goods-providing sectors contributing equally to the fall. Within the latter, mining and manufacturing segment were the major laggards, shaving 41K off the headline print. In the service-providing sector the pace of job additions in retail trade slowed. However, education and health services posted steep gains. Government payrolls continued its positive trend and added 20K jobs in March. Wage growth turned positive After posting a sharp downtick of (-)0.1% MoM in February, average hourly earnings growth turned positive at 0.3% MoM in March. On a year-on-year basis, wage growth remained unchanged at 2.3%. Meanwhile, the average weekly hours held steady at 34.4. Unemployment rate edged up for the first time in a year According to the household survey data, the unemployment rate rose to 5.0% from 4.9% in February. The U-6 unemployment rate (which is a broader measure that includes part-time and discouraged workers) increased to 9.8% from 9.7% previously. However, labour force participation rate rose for the fourth consecutive month to 63.0% from 62.9%. Fig 2: Earnings growth displayed a rebound in March Markets react on upbeat NFP and wage print   Markets initially reacted to the higher than expected headline NFP print with a slight spike in 10Y Treasury yield. A similar move was seen in the 2Y yield as well. However, some correction was seen thereafter as dovish stance by the Fed in its March meeting and recent commentary by Fed Chair Yellen remained overarching. The DXY index rose to ~94.7 levels post the data release vs. 94.4 levels previously. (1900 IST) Incoming data and global developments to remain key going ahead In the March policy, the Fed lowered its median Fed funds rate forecast, thereby signaling a more gradual pace of rate hikes and highlighted risks from global developments. The same was reiterated by Janet Yellen in her recent commentary. While we believe in the relatively improved assessment of the US economy (with continued strengthening of labour market conditions), incoming data and developments in global and financial markets will remain critical for determining the next policy action. Our assessment currently attaches a higher probability to a policy move in H2 2016. Regards, ICICI Bank Contact: Niharika Tripathi (+91-22) 2653-1414 (extn: 6943) niharika.tripathi @icicibank.com ​

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CA. Rajesh Desai

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