Today we get the Non Farm Payroll data for March. Expectations are for 205,000 net new jobs, with Unemployment ticking down slightly. Unemployment benefits have dropped to the lowest level in four years, although long term unemployment remains a stubborn problem. And one of the drags on NFP data — government layoffs — may have run their course for now.
The key question for the report: Seasonal weather factors. Exactly how many jobs did the unusually warm weather in January and February pull forward from March (and April). The sectors likely to be influenced are construction, auto sales, transportation, and even retail shops like Home Depot and Lowes. I have heard some people suggest even hospitality and food service gained from the record high temperatures.
As an investor, I am keying in on two factors: What Does this mean for the possibility of Recession? And how does the Federal Reserve react to better or worse numbers?
While most of the Street has already moved past a possibility of any economic contraction, a few laggards (notably, ECRI and John Hussman) still are maintaining their recession vigils. A fourth month of 200k+ job creation makes those positions much less tenable; however, a major disappointment puts the economic bear back in play.
As far as the Fed is concerned, too good a number puts the probability of QE3 into further doubt. That is significant, as monetary stimulus have been a major catalyst to equity price rises. A strong number raises the bar for more stimulus. If that were to happen, equities are going to have be priced based on their earnings and growth prospects.
Imagine that . . .
Jobs News Could Be So Good That It’s Bad
Jobs News Could Be So Good That It’s Bad (WSJ)
Jobless benefits claims drop to lowest levels since 2008 (WaPo)
Payrolls in U.S. Probably Expanded by 205,000 Last Month (Bloomberg)