March Employment Report Does Not Change Macroeconomic Outlook

The March Employment Report does not change the macroeconomic outlook nor should it change the Fed's gradual approach to tightening.  Real GDP Growth should continue to grow moderately with little inflationary pressures.  The risk is still for Real GDP Growth to speed up in Q218, with job growth in Aprl-May continuing to pay back for the January-February strength -- just as it did last year. 

The Report should be neutral to positive for stocks and Treasuries, once they look past the headlines.  The markets, however,  are focused on the threat of a trade war and the other policy threats coming out of Washington.

Payrolls were strong in Q118, despite the sharp slowdown to +103k m/m in March and net 50k downward revision to January-February.   They averaged +201k m/m in the quarter, above the +182k m/m  2017 average.  This relatively strong job growth probably means Payrolls still have more room to pay back for the January-February strength.  They should remain soft in April-May, like last year (see my March 18 blog).  The jump in layoff announcements in March, particularly in the retail sector (eg, Toys R Us), and last week's jump in Initial Claims support this view.

Wage pressures remain in check, despite the 0.3% m/m jump in March Average Hourly Earnings.   The jump is consistent with calendar considerations.   The latter point to a 0.2% m/m increase in April and 0.1% m/m increase in May.    The y/y would be 2.6-2.7% in May, little changed from the 2.7% seen in March and in 2017. 

Importantly, the Labor Force Participation Rate stayed high in March, edging down only 0.1% pt to 62.9%.  This was the high point in 2017, attained in 5 of the 12 months.   A high participation rate allows for faster GDP growth without putting upward pressure on wages.