Employment Report Provides the Fed Additional Runway

The US economy posted solid employment gains for the month of March though the unemployment rate ticked up to 5% from 4.9%. In some respects, Friday’s employment report was precisely what Fed Chair Janet Yellen was hoping for, given the cautious outlook for interest rates provided last week.

For the month of March the US economy added 215k jobs, consensus was calling for 210k. Additionally, the prior month was revised +3k to 245k. The unemployment rate rose to 5% primarily as a result of more long term unemployed persons attempting to re-enter the work force. The Participation Rate actually rose to 63% from 62.9% indicating that the overall health of the employment landscape is modestly improving as well. The Average Hourly Earnings M/M change also outperformed to the upside by gaining 0.3% in the month versus the previous month’s decline of 0.1%. These gains in the employment landscape in conjunction with a tick higher in the official unemployment rate all provide the Fed further runway for the next move in rates. Ideally, the continued improvement in this data should lead to a tick higher in inflation and wage growth.

Investors were certainly cheered by the data as all three major US equity market indices registered solid gains on Friday’s session.


The Nasdaq led the way by gaining 0.92% on an uptick in volume of 5.43%. The Dow Industrials gained 0.61% and the S&P 500 locked in a gain of 0.64%. Impressively, those gains came despite crude WTI’s drop of 4.04% on the day. The Sector Heat Map was solidly in the green with the exception of Energy (-1.00%) and Communications (-0.20%).

Though this week’s economic calendar is somewhat less dense than in recent weeks, there are several data points to keep a close eye on. Factory Orders on Monday, ISM Non-Mfg. on Tuesday, EIA and FOMC Minutes on Wednesday, and Baker-Hughes on Friday.

We will be treated to no less than eight speeches by Fed officials, the most important of which will be on Thursday after the bell by Chair Yellen.

The next cue for investors will come from Q1 earnings. As I have suggested in recent notes, this earnings season does have the potential of upsetting a rather fragile apple cart.

flickr: World Bank Photo Collection