Flash Notes

The US economy added 215,000 jobs in March, beating both the Bloomberg consensus forecast of 205,000 and this week’s ADPnumber of 200,100. February NFP was revised a tad higher to 245,000 (from previous estimate of 242,000) while January NFP wasalso revised lower to 168,000 (from previous estimate of 172,000). The numbers in Jan 2016 and Feb 2016 on aggregate wererevised lower by just 1,000. Positive jobs growth was again recorded in retail trade (+47,700), leisure & hospitality (+40,000),professional & business services (+33,000), construction (+37,000) and educational & health services (51,000). Manufacturingemployment disappointed further in March with a greater loss of 29,000 jobs (well below expectations for a slight 2,000 increase)and the February manufacturing jobs losses was also revised lower to 18,000 (from -16,000 previously). The other key drag to theFebruary NFP came unsurprisingly from the continued decline in mining & logging employment, this time by another -12,000 inMarch. According to the BLS, the mining & logging employment has fallen by 185,000 since its peak in September 2014.

    Meanwhile, unemployment rate was unexpectedly higher to 5% in March (from 4.9% in February) while the US labor forceparticipation rate continued on its improvement path to 63% (from 62.9% in Feb) but under-employment (U6) rate also took asmall step higher to 9.8% (from 9.7% in Feb).

    Wage growth was the (small) positive surprise in March as it grew 0.3%m/m after a 0.1%m/m decline in February. As a result,hourly earnings growth came in unchanged 2.3%y/y (from February and slight improvement the median forecast of 2.2%). The USLabor Department’s aggregate weekly payrolls index, which includes hours, earnings and employment, increased by +0.4%m/m inMarch and compared to the same period 1 year ago, it was up by 4.24%y/y, noticeably better from the 3.8% in Feb.

    We think this is really a Goldilocks number and really ends up as a non-event. While the headline NFP looks slightly better thanwhat markets had hoped for even though unemployment rate worsened a bit as we have a uptick in labor participation rate, but thewage growth continues to be uninspiring. We expect the US dollar to further lose its footing but the magnitude should not causemajor tremors in the financial markets. The initial US stock market reaction seemed negative but it remains to be seen if thingscould turn around in a short time. Based on trading in futures and options data compiled by Bloomberg, the probability of anotherFed rate hike in April 2016 FOMC stayed unchanged at 0% (as of 1 Apr 2016, 9:30pm Singapore time) which been at 0% since thedovish speech by FOMC Chair Yellen on 29 March 2016 while the chance of a June hike rose to 26% (from 20% on 31 March).

    The next FOMC meeting will be held on 26/27 April (decision due on 28 April, 2am Singapore time) but is without theupdated Summary of Economic Projections or a scheduled press conference by Janet Yellen. The US Fed Reserve kept its policyrate unchanged at 0.25-0.50% in March and remained positive on US outlook but highlighted “global economic and financialdevelopment” concerns and guided future rate trajectory expectations lower with the median policy rate forecast for end-2016 at0.875% (from 1.375% previously), indicating just two 25-bps rate hikes this year, in line with UOB expectations. The median rateforecasts for 2017, 2018 and even the longer-run were also guided lower. And while some Fed officials initially kept the next AprilFOMC meeting as a “live” possibility but the key person was the FOMC Chair Yellen who gave a speech to the Economic Club ofNew York (on 29 Mar) which had a more dovish bias than was perhaps perceived over previous months and was a sharp contrastto those of other Fed members, who in recent weeks had often supported the notion of looking past market turmoil and perhapsraising rates gradually. Yellen reiterated the need for the Fed to “proceed cautiously” in lifting interest rates given unfavorablemarket conditions, weaker than expected overseas growth and an uncertain inflation outlook, and she honed in on China risks andoil markets. We are keeping our projection for the US Fed policy trajectory to be even more spread out and gradual, to justtwo 25bps rate hikes in 2016 (one in each half of the year -at the 14/15 June and 13/14 December FOMC meetings) to bringthe FFTR to 1% by end-2016. Although there remains a lot of uncertainty on the 2016 outlook and the risk still looks tilted towardsthe downside so we may yet see a shallower rate trajectory but we also believe that the Fed will do at least one hike in 2016 (notzero), probably pushing that decision right to the end in the December FOMC if needed.