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Forget the jobs report: There's a more important economic story unfolding today

Nicole Sinclair
Markets Correspondent

All eyes focused today on the March jobs report, with the S&P (^GSPC) little changed after the Labor Department reported that 215,000 jobs were added last month, accompanied by moderately rising wages and an uptick in the participation rate.

But overlooked was arguably the biggest story of the day: China’s manufacturing report. China’s official manufacturing purchasing managers index (PMI) showed growth for the first time in eight months. The PMI jumped to 50.2 in March, the first time since July that it exceeded 50, the dividing line between growth and contraction.

“This surprisingly strong official PMI release points to stronger growth momentum in March and was largely supported by domestic demand, especially property and infrastructure investment as a result of policy easing,” said Nomura’s Yang Zhao. “Evidence suggests policy easing could be more aggressive than we had expected, fiscal and quasi-fiscal policy easing in particular , which means a rebound could be stronger and more lasting than we initially thought. “

Last month, officials at the National People’s Congress pledged action to meet their 6.5% to 7% GDP growth target for this year following reassurances given at the G20 meeting, according to analysts. Still, uncertainty and fears about an economic hard-landing in world’s second largest economy remain elevated for Federal Reserve Chair Janet Yellen.

As Deutsche Bank’s Torsten Slok noted earlier this week, Janet Yellen has become increasingly focused on the potential impact of the rest of the world on the US economy and Fed policy. This rang true during her latest speech at the Economic Club of New York on Tuesday, where she reasserted her dovish stance on monetary policy going forward.

Slok tallied up the frequency with which Yellen has made reference to forces like China and the rest of the world.



“Looking forward however, we have to take into account the potential fallout from recent global economic and financial developments, which have been marked by bouts of turbulence since the turn of the year,” Yellen said. “There is a consensus that China's economy will slow in the coming years as it transitions away from investment toward consumption and from exports toward domestic sources of growth. There is much uncertainty, however, about how smoothly this transition will proceed and about the policy framework in place to manage any financial disruptions that might accompany it.”

It’s worth noting that manufacturing activity has picked up in the world’s largest economy: the US.

The Institute for Supply Management (ISM) manufacturing index hit 51.8 in March, up from from 49.5 in February. It’s the first time that the gauge reflected growth, exceeding 50, since August.

All of these improvements are sure to put pressure on the Fed to tighten monetary policy sooner than later.