The March jobs report has come and gone.
And the market didn’t do much. On Friday, each of the major U.S. stock indexes fell less than 0.1% while U.S. Treasuries finished the week roughly where they started.
In March, nonfarm payrolls grew by 98,000, less than expected by economists, while the unemployment rate fell to a new post-crisis low of 4.5%. This is the lowest since May 2007. Wage gains remained solid — rising 2.7% year-over-year — and overall, this report is unlikely to change the Fed’s calculus in the coming months.
Elsewhere in markets this week, most of investors’ attention on Friday was on politics and geopolitics after Thursday night’s missile strike on an airfield in Syria.
In the coming week, markets will contend with a good bit of economic data as well as the beginning of fourth quarter earnings season, which will be kicked off by the big U.S. banks, including JPMorgan (JPM), Citi (C), and Wells Fargo (WFC).
Additionally, stock and bond markets in the U.S., as well as many bourses overseas, will be closed on Friday in observation of Good Friday.
Headline job gains in March were a disappointment. But the report was only a total dud if you view payroll gains relative to consensus as the mark of success for the labor market in a given month.
And many strategists and economists do not.
“Within an environment that must be in close proximity to full employment, it’s not surprising to see an occasional month of softer data, as so many qualified applicants have already been taken out of the unemployment pool,” said Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income.
Rieder reiterated his view that the economy moved into a new, reflationary regime in the later part of 2016. And this, more than any specific Trump policy, is what’s driving the Fed rate hike cycle and the continued tightening of the labor market via a lower unemployment rate.
We’d also note that research from the San Francisco Fed published last year argued that monthly job gains of 50,000-110,000 per month are what’s likely needed to sustain the economic recovery.
How this plays out for the Fed, however, depends on whether the Fed wants to see more wage gains or if the changing nature of the labor market will be enough to spur action.
“Longer term, we think there are two competing issues for the Fed,” writes Neil Dutta, an economist at Renaissance Macro.
“First there is some risk the Fed could cut the NAIRU estimate if wages fail to accelerate from here. That’s dovish. Second, the composition of payroll growth to more productive industries along with the likely pick-up in the participation rate implies stronger potential growth. That means higher neutral rates, which is hawkish.”
As for how the new administration is viewing the jobs numbers and the labor market more broadly, Gary Cohn, chief economic advisor to President Trump, told Bloomberg TV in an interview on Friday that the administration was “pretty pleased” with the jobs report on Friday.
Notably, Cohn added that, “The President and I spend a lot of time looking at the U-6 number,” which captures not just the unemployed but the underemployed, or those working part-time who would prefer to work part-time. The more commonly-cited unemployment rate is the U-3 number, one of six released by the BLS.
In March, the U-6 rate fell to 8.9%, a new post-crisis low. But if the Fed and the White House are focusing on different unemployment rates by which to measure the strength of the U.S. labor market, this sets up, it would seem, for a potential conflict down the road.
- Monday: Labor market conditions index, March (1.3 previously)
- Tuesday: NFIB small business optimism, March (104.5 expected; 105.3 previously); Job openings and labor turnover survey, February (5.6 million job openings previously)
- Wednesday: Import price index, March (-0.3% expected; 0.2% previously)
- Thursday: Producer prices, March (0% expected; +0.3% previously); Initial jobless claims (245,000 expected; 234,000 previously); University of Michigan consumer sentiment, April (96.6 expected; 96.9 previously)
- Friday: Consumer price index, March (0% expected; +0.1% previously); Retail sales, March (-0.1% expected; +0.1% previously)
Markets in 2017 have, for the most part, been bereft of volatility.
This is both good and bad.
It’s good because volatile markets are usually the result of something seeming wrong when it comes to either the global economy or the global financial markets. And I think that while there are the subversives out there who would rather see global markets fail and chaos reign, on balance things are better when markets and economies are performing well.
But a lack of volatility, as we’ve noted before, is bad because it is signals that there is too much complacency in markets. And given that markets are places both of financial and social interactions, complacent participants set the experiment up for a surprising and disruptive turn at a later point.
Or as Bloomberg columnist Matt Levine has written, “An underrated piece of poetry in finance is that the opposite of fear is complacency, and you should fear complacency.”
On Friday, Bloomberg editor Joe Weisenthal tweeted that, “The lack of volatility in markets is becoming like one of those jokes that feels boring and repetitive but starts to get funnier over time.”
The responses to this tweet are a mix of, “Yes, markets are funny in general,” and folks telling Joe that he’s completely missing how scary the current lack of volatility is. The latter being, to my mind, the perfect response.
The whole reason you’d be compelled to note that the lack of volatility is a joke that gets funnier over time is because by pointing out how little volatility there is in market you will in every case get those arguing that this is bad because complacency is bad. The joke about volatility, in other words, gets funnier because the punchline remains the same.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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