KNOWLEDGE CENTER

Knowledge Center Archive

Apr
12
2012

Podcast: March 2012 Payroll Report

By Sean P. Simko

The March nonfarm payroll number came in at 120,000 jobs created, which was well below the consensus expectation of 205,000. This was the first report for the year in which the data was below the estimate. And was also the lowest reading since October 2011. The bottom line: U.S. hiring continues to increase, albeit at a slower pace. Confidence within the labor market remains solid, but will start to come into question if data continues to show signs of softening.

 

SHOW/HIDE TRANSCRIPT

Welcome, my name is Sean Simko. I am Managing Director of SEI Fixed Income Portfolio Management. Today’s commentary focuses on the release of employment data for March, including the nonfarm payroll number and the market’s initial reaction.

The March nonfarm payroll number came in at 120,000 jobs created, which was well below the consensus expectation of 205,000. This was the first report for the year in which the data was below the estimate. It was also the lowest reading since October 2011, when companies created 112,000 jobs. February’s number was revised higher by 13,000. Private payrolls added 121,000 without a revision to last month’s data. The manufacturing sector created 37,000 jobs, and retail jobs fell by 34,000. Employment in the leisure and hospitality sector increased by 39,000 jobs, while construction jobs fell by 7,000. The unemployment rate fell to 8.2%, the lowest since January 2009.

The ADP National Employment Report, released prior to the nonfarm data, showed an increase in hiring activity with the addition of 209,000 jobs. This was a strong number, even though it was below February’s revised gain of 230,000. Keep in mind that the ADP report has been known to be volatile, and its history does not provide a solid track record. As a result, economists mainly use this report as an indicator for the nonfarm report.

The bottom line is that U.S. hiring continues to increase, albeit at a slower pace. Confidence within the labor market remains solid, but will start to come into question if data continues to show signs of softening.

In an abbreviated session, Treasury-market yields rallied back to the low end of the recent trading range. The sustainability of economic growth remains in question, and the weaker-than-expected labor data raised more than a few eyebrows. It also impacted the fed funds futures market, as fed funds futures pushed back the expectation of a rate increase by two months to the June meeting. The entire curve rallied after the report, with the two-year yield hovering at 31 basis points, the 10-year yield closing at 2.05%, and the 30-year yielding 3.21%.

March’s nonfarm labor data was disappointing, and Treasurys reacted accordingly. While this was just one report, it shows how fickle and sensitive market participants can be. We continue to feel that the labor market should improve as we head into the second quarter of 2012. However, we will not be surprised if there are months of slower growth as companies continue to assess the strength of the economy.

If you have any questions about this podcast or the financial markets, please contact your SEI representative.

Thank you.

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