Strong non-farm payrolls gets US job market back on track in March

US non-farm payroll rose by 196,000 in March - versus expectations of 177,000 - while the gain in February was revised upwards to 33,000. The important message from the report in March is that the weakness in February was just temporary. The underlying state of hiring in the US remains robust. The weaker part of the nonfarm payroll report is that average hourly earnings disappointed by slowing to +3.2% year-on-year (YoY) from +3.4% YoY in February.

The combination of strong employment and easing wage growth is a “goldilocks” backdrop for markets. Despite the tight labour market, a lack of significant inflation pressure means the Federal Reserve can retain its patient stance. US equity markets reacted positively after the release.

After revisions, the average pace of job gains in the last three months is 180,000, which is impressive given the mature stage of the economic expansion. The unemployment rate remained at 3.8%, as expected. Given that payroll change is back to a near +200,000 pace, it is likely that the unemployment rate will continue to fall further this year. The strong labour market and lower inflation supports our assessment that household consumption growth should return to a solid path in the second quarter.