NFP Preview Potential redemption for US jobs in April after disappointing March data

In the May FOMC statement released on Wednesday, the Fed stated that "job gains were solid, on average, in recent months." This was a departure from the statement issued after the last FOMC meeting in March, which simply asserted that “job gains remained solid.” This subtle change in wording was a delicate nod to the highly disappointing employment numbers released in April for the month of March – 98,000 jobs added against prior consensus forecasts of around 175,000. Averaging employment gains across recent months takes focus away from March’s relatively dismal jobs data. Was March simply an anomaly in an otherwise rosy US employment picture? This Friday’s non-farm payrolls report for April will be key in answering this question.

Also in the May FOMC statement, the Fed rather hawkishly portrayed an optimistic picture of other aspects of the US economy in addition to the solid jobs situation. Despite rather lackluster US economic data recently, most notably with respect to weak GDP in the first quarter of the year, the Fed opined that slowing growth was likely “transitory,” "fundamentals underpinning the continued growth of consumption remained solid,” and “inflation measured on a 12-month basis recently has been running close to the Committee’s 2 percent longer-run objective.” This Fed confidence places even more importance on an April bounce-back for job gains on Friday.

Expectations

Consensus expectations for this Friday’s NFP, which will be accompanied by key related data on the unemployment rate and wage growth, are currently around 190,000 jobs added for the month of April. The April unemployment rate is expected to have risen slightly to 4.6%, while average hourly earnings are expected to have had a higher increase of 0.3%.

Jobs Data Preceding NFP

Key employment-related data releases for April preceding Friday’s NFP included the ADP private employment report, ISM manufacturing and non-manufacturing PMI employment components, and weekly jobless claims data throughout the month.

While the ADP report is often considered a precursor to the official non-farm payrolls government data, it should be kept in mind that for March, ADP showed substantially better-than-expected numbers (263,000 private jobs added against previous forecasts of around 185,000), only to be followed by a highly disappointing NFP. With that caveat stated, Wednesday’s ADP report for April showed 177,000 jobs added, essentially in-line with consensus forecasts of around 175,000.

ISM manufacturing employment in April may have served as somewhat of a red flag, although manufacturing jobs are not nearly as prominent as the more critical services sector in the US economy. While jobs in manufacturing continued to show growth and expansion in April at an index level of 52.0 (above 50 indicates expansion), that growth was substantially slower than the previous month’s 58.9. The vital ISM non-manufacturing (services) employment also showed slowing growth in April, but only slightly slower than the previous month at 51.4 against March’s 51.6. Overall, employment in April as represented by the ISM showed somewhat slower expansion than in the previous month.

Finally, April’s weekly jobless claims data was generally a mixed bag, but still very low overall from a historic perspective. Of the four weeks in April, unemployment claims were modestly better (lower) than expected in the first and last week of the month, while the two middle weeks were modestly worse (higher) than expected.

Forecast and Potential Market Reaction

Overall, there is likely to be a significant improvement in April’s NFP data from the March disappointment, but judging from recently preceding jobs data, the April numbers are unlikely to be exceedingly positive. As for revisions, there is a distinct possibility that March’s 98,000 figure will be revised upwards.

With prior consensus expectations of around 190,000 jobs added in April, our target range is around 170,000-185,000. As noted earlier, this jobs report will be of critical importance for the Fed, especially since June’s FOMC meeting is only slightly more than a month away, and employment data will need to show improvement in order to justify an expected Fed rate hike then. As such, any outcome significantly lower than forecast should temper Fed expectations and could lead to an extended pullback for the dollar. A result in the higher end of the target range or above should increase Fed hike expectations and help support a potential dollar recovery after the recent downturn.

NFP Jobs Created and Potential USD Reaction

> 200,000
Bullish

186,000-200,000
Moderately Bullish

170,000-185,000
Neutral

150,000-169,000
Moderately Bearish

< 150,000
Bearish