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Friday, April 4, 2014

U.S. Labour Market - Improving

Chart: U.S. Employment/Population Ratio

The data for March 2014 for the Household Survey component of the U.S. Employment Situation Report were good; the employment/population ratio rose by 0.1% to 58.9%, which means that a whopping 476 thousand jobs were created on that measure. The unemployment rate was static at 6.7%, courtesy of a rise in the participation rate by 0.2%. On the whole, this gives evidence that steady growth continues.

Chart: U.S. Unemployment Rate

The rise in the Participation Rate has slowed the descent of the unemployment rate, which had previously slashed below the cycle's trend line in late 2013. I do not see this as surprising; as the unemployment rate drops, there are less long-term unemployed that can quit the labour market. And since jobs are being created, albeit at a slow pace, those who have quit the labour market will drift back into it. At 63.2%, the participation rate is almost unchanged from last March's level (63.3%). It is going to be correspondingly more difficult for the unemployment rate to fall in the absence of a meaningful acceleration of job creation.

The Nonfarm Payrolls (NFP) number was slightly below the pre-release consensus. Given that the standard error around the +192 thousand estimate for NFP covers almost the entire range of pre-release economist estimates, they all can claim to have been correct.

Afternoon Update: One of the side effects of looking at the economy in a different way is that I have a different read on the data than the markets. The market had a decent rally in response to this release (7 bps at the 10-year point), whereas my reading is that the data are mildly bond-bearish. My guess is that market participants attributed the weakness in previous months to the weather, and so the implied market consensus was for a March NFP print over 270k. I would have only survived about three days as a market maker.

(c) Brian Romanchuk 2014

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