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Ahead of Wall Street

Friday, April 4, 2014

The jobs report did not meet some of the more optimistic estimates, but it nevertheless provides further evidence that the U.S. economy is coming out of its winter freeze. The magnitude and pace of the recovery may not be fast enough, but there is little doubt that there has been improvement.

A total of 192K non-farm jobs were created in the economy for the month of March, a tad below consensus estimates but broadly in-line with what we saw from the payroll processor ADP (ADP - Analyst Report). Importantly, the tallies for the prior two months were revised higher by a total of 37K, with February going up to 197K (from 175K) and January going up to 144K (from 129K). All job gains in March came from the private sector, with no change in government payrolls.

Average weekly hours improved materially this month – 33.7 hours vs. 33.4 in February – confirming that the drop-off in hours over the last few months was weather-related. Surprisingly, the job gains in the more weather-exposed goods-producing industries this month were lower than what we saw in February.

Also, average hourly earnings ticked down from the prior month’s level. The strong gains on the earnings front last month had raised hopes that we may be finally be starting to see improvement in this key driver of consumer-buying power. But the decline this month shows that the February gain may have been a result of some data fluke.  

Today’s jobs report adds to the growing list of recent economic readings that are pointing towards improvement in the economy in March after the soft readings in the first two months of the year. That said, economic growth likely came down materially in the first quarter of 2014 from the ramped-up pace set for the second half of 2014.

Estimates for first quarter GDP have been steadily coming down in recent days, with growth expected to be roughly the 2013 Q4’s +2.6% pace. But Q1 is expected to be the low-point for the year, with growth expected to steadily improve from Q2 onwards and reach above +3% in the second half of the year. It is this favorable outlook that is driving the stock market higher.  

Sheraz Mian

Director of Research

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