Investing.com – Job creation weakened much more than expected in March, causing speculation that the Federal Reserve (Fed) may be unable to move forward with its plan to hike interest rates two more times this year.
According to the employment report released Friday, non-farm payrolls (NFP) rose just 98,000 in March in a severe slowdown from the prior month’s creation of 219,000. The number was its lowest in 10 months and also barely reached half of the consensus estimate of 180,000 jobs.
Wage inflation did increase in line with forecasts with a month-on-month rise of 0.2% and an annualized advance of 2.7%, but both numbers marked a slight easing from the prior gain of 0.3% and 2.8%, respectively.
The increase in average hourly earnings is being closely monitored by the Federal Reserve for evidence of diminishing slack in the labor market and upward pressure on inflation.
Still, not all of the data was negative as the jobless rate unexpectedly dropped to 4.5%, its lowest level since 2007.
“Yes it’s a miss, but I am less negative about the jobs report than most media commentators,” Allianz chief economic adviser Mohamed El-Erian said, pointing to wage growth that was in line with forecasts and the fact that the three-month average of job creation still settled at 178,000.
ING economist James Smith agreed that the nonfarm payrolls number was “awful, but I have to think it’s mostly a temporary correction”. He added that household survey (which is what the unemployment rate is based on) was much stronger, showing the creation of nearly one million jobs in the last two months.
“One slightly disappointing month does not constitute a wholesale change in fortunes,” experts from Charles Schwab (NYSE:SCHW) said.
“We’ll need to see more hard data before we know whether these numbers are the start of a downward trend away from the strong jobs market or merely a temporary blip on the radar,” they added.
Fed outlook expected to be left unchanged
The contradiction in the information from the household survey, which shows that the jobless rate dropped to 4.5%, and the employment survey, which supplies the job creation number, could put the Fed in a rough spot.
Indeed, in an immediate reaction, Fed fund futures took a rate hike in June off the table but, as the smoke cleared, odds went back to being priced at around 62%, according to Investing.com’s Fed Rate Monitor Tool.
“I think for the Fed, it doesn't change all that much in the near term outlook,” Bank of America Merrill Lynch (NYSE:BAC) strategist Mark Cabana said, pointing to the fact that the Fed wasn’t planning on going in May and officials will have two more employment reports to digest before the June 14 meeting.
“It doesn't change the outlook materially right now, but it probably weighs on the upside risks to growth that some Fed members had been seeing,” he added.
In the meantime, New York Fed president William Dudley will be the first official scheduled that could comment on the numbers. Although Dudley is scheduled to speak on financial regulation and reform at 12:15PM ET (16:15GMT), the appearance will include a Q&A.
Markets currently have to wait until Monday to quiz Fed chair Janet Yellen herself on her outlook for the economy and the future path of monetary policy when she participates in a conversation at the University of Michigan at 4:00PM ET (20:00GMT). According to the organizer, Yellen will respond to questions both from the audience and via Twitter.
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