NFP normalization and Fed hold expectations – TD Securities

TD Securities analysts expect the March US labor report to show a normalization in Nonfarm Payrolls (NFP), with headline gains of 30k, private NFP at 40k and a -10k drag from government jobs. They see the Unemployment Rate at 4.4% and note that risks are skewed dovish, reinforcing expectations that the Federal Reserve (Fed) will stay on hold.

Headline NFP gains of 30k and Unemployment Rate at 4.4%

“We expect headline NFP to show a normalization in job gains to 30k for March after two volatile months. We look for 40k private NFP and -10k government. A large portion of the rebound in job gains will likely come from a reversal of strike and weather effects in February.”

“We look for the UE rate to remain at 4.4%, signaling a still-stable labor market. The household survey will carry more significance for the Fed given recent volatility in payrolls (establishment survey).”

“Risks are again skewed dovish for this report. We see a higher chance of an increase to a 4.5% UE rate rather than a decline to 4.3%. Underlying momentum in February was weak, and the UE rate for younger workers could continue reversing higher. Risks for payrolls are balanced between a larger-than-expected weather rebound and weaker-than-expected hiring, as signaled by private sector indicators”

“The March employment report would be a welcome sign for the Fed, but developments in Iran will continue to be the dominant theme for the economic outlook. A stable labor market allows the FOMC to stay patient as they assess the economic impact of the unfolding oil shock—as they have historically done.”

“However, the overall slowdown in hiring reinforces that the economy is nowhere near as strong as in 2022, which makes the prospects of hikes less likely.”

“In the scenario headline employment stays weak while the U-rate rises to 4.5, we would expect some knee-jerk USD weakness on the day. Recent FX performance on NFP days suggests the JPY would likely outperform in G10. Nonetheless, aggregate FX positioning should still remain net long USD as the Middle East situation remains fluid.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)