Non-Farm the Latest in a String of Softer Data

Last Friday, we received the release of the highly anticipated monthly non-farm payrolls report from the Bureau of Labor Statistics (BLS). The report showed that the net change in employment was +160k, lower than the consensus expectation for +200k. In addition, the prior two months were revised down by a total of 19k. The unemployment rate remained constant at 5%, worse than the expectation for a slight decline to 4.9%. The participation rate dropped for the first time in six months from 63% to 62.8%. The silver lining in the report was a better than expected increase in wages, at 2.5% year/year versus 2.3% in the prior month and a 2.4% consensus expectation, as well as a slight uptick in the work week to 34.5 hours from 34.4. Unfortunately, while the wage and hours worked figures are bright spots in an otherwise weak report, they are not especially strong in their own right and are unlikely to provide enough support for the Fed to raise rates at its next meeting in June. As such, odds for a hike at June meeting declined to 8%, and fell to around 40% for a single hike by year end. According to Blackrock’s global fixed income CIO, Rick Rieder, the decline in corporate earnings over the last few quarters is a driver of the labor softness, which, though the report was even weaker than anticipated, was not entirely unexpected. Treasury rates initially fell on the news, but ended the day higher as technical factors drove them up throughout the day. We continue to expect the economy to bump along as it has been, but find no catalyst for better growth or higher inflation in the near term, which keeps the outlook for a range-bound interest rate environment intact.

Sources: Bloomberg, CRT, Barron’s