US and Canada Employment Data Constructive (not Spectacular)

The US employment report is stronger than it appears. The headline job creation was in line with expectations at 192k, but the February job creation was raised 22k to 197k. The unemployment rate was steady at 6.7%. However, since the FOMC dropped its 6.5% unemployment threshold, investors have been guided to look at the broader measures of the labor market. 

There are three such factors to note. First, the participation rate rose to 63.2%. The low participation rate was cited by Yellen recently as evidence of the lax in the labor market.

Second, Yellen also pushed against argument that the increase in hourly earnings in February heralded some kind of wage push inflation. We suggested the rise in hourly earnings was partly a statistical fluke and weather induced. In March hourly earnings were flat against consensus expectations for a 0.2% increase. This puts the year-over-year increase in line with the longer term average near 2%.

Third, the workweek increased. The average work was 34.5 hours, while the February series was revised to 34.3 from 34.2 hours. This matches the cyclical high and suggests output figures will be stronger. 

Good is not great. Yellen also cited the large number of people who are working part-time jobs but want full-time work as evidence of slack in the economy. That number rose by 225k to 7.411 mln. The U-6 measure of unemployment rose to 12.7% from 12.6%.

The data is consistent with the generally held view that,after a weak start to the year, the US economy found better traction later in the quarter. Although there were other headwinds, like the inventory cycle and the capex tax incentive that brought forward investment, the weather also depressed some activity and that effect is waning. The Fed’s course remains well entrenched. The tapering continues. First rate hike still not until H2 15. 

Canada also reported a favorable employment report. The unemployment rate slipped to 6.9% from 7.0%,and the participation rate was unchanged at 66.2%. However, the headline job growth of almost 43k, overstates the case. Other those, a little less than 13k jobs were full-time. Still this is a constructive reported and the US dollar broke below CAD1.10. The dollar-bloc and emerging market currencies have generally rallied. 

The Mexican peso has rallied with the dollar falling to almost MXN13.00. The central bank is still to release minutes from last month’s meeting. They are likely to be dovish,and this may limit peso strength from here.

More broadly, the dollar strengthened, but US bond yields have eased (2-4 bp), and this seemed to have helped cap the greenback just above JPY104. The euro held chart support near $1.3680 and is bouncing back. Resistance is now seen in the $1.3740-60 area.