Labor Market Data Give the FOMC A Bit of Relief

Recent spending data have pointed to somewhat higher real GDP growth in Q1, perhaps around 2%. However,  much of the upward revision has come from components outside final private demand—inventories, net exports, and government. It still appears that final private demand growth slowed in Q1, and the U.S.  economic picture remains hazy. But the March jobs report will have reassured FOMC participants that the  U.S. economy remains on a healthy growth trajectory despite an apparent slowdown in the first quarter (link).  Most important was that nonfarm payrolls posted a strong 196K gain in March following a very weak February print. While recent monthly readings have been very choppy, the trend looks good. Monthly payroll gains have averaged 180K over the first three months of 2019—a very solid pace and almost exactly what we’d anticipated in our December forecast. This report didn’t change our Fed call (next move more likely to be a  cut than a hike, but no cut or hike in the near term), as it neither indicated any overheating that would push the FOMC to return to a tightening bias nor suggested that the economy is in the midst of a worryingly sharp slowdown. 

Policymaker Remarks 

Policymakers seemed to be hopeful that the Q1 weakness will be short-lived, although they maintained their preference for patience for the time being. Williams (Apr. 4) hewed close to previous remarks and continued to support the current wait-and-see mode. He also suggested that the yield curve slope might not be as strong a signal as in the past because of the prevailing environment of lower longer-term interest rates. Harker (Apr.  4) reiterated his preference for two hikes in total over 2019 and 2020. Mester (Apr. 4) reiterated her support  for FOMC’s patient stance “given the current level of interest rates, and little sign that inflation is poised to  rise appreciably despite the strength in labor markets.” However, she suggested that she still leans to the  hawkish side: “I’m biased to either keeping rates where they are or moving them up a little bit.” But she also acknowledged there may be no more rate hikes during this cycle.  

Numerous White House officials have also commented on Fed governor selections. Two governor vacancies are remaining. Following Trump’s announcement that he will nominate Stephen Moore, he also confirmed reports that he plans to nominate Herman Cain. Both candidates are viewed as being more partisan than the current governors. Senate confirmation could pose a considerable hurdle for each candidate, despite the White House’s support in the face of opposition. In addition, both Kudlow and Trump have recently called for immediate policy easing. We don’t expect the Fed to oblige. 

Nowcasts (2019:Q1) 

Source Current One Week Ago Two Weeks Ago
Atlanta Fed GDPNow 2.3% 1.7% 1.2%
New York Fed Staff Nowcast 1.4% 1.3% 1.3%
CNBC/Moody’s Survey 1.6% 1.5% 1.4%

Recent Data 

Release Period Actual Consensus Revision to  Previous ReleasePreviously  Released Figure
Retail Sales Advance MoM Feb -0.2% 0.2% 0.7% 0.2%
Retail Sales Control Group MoM Feb -0.2% 0.3% 1.7% 1.1%
ISM Manufacturing Mar 55.3 54.5 — 54.2
Construction Spending MoM Feb 1.0% -0.2% 2.5% 1.3%
Business Inventories MoM Jan 0.8% 0.5% 0.8% 0.6%
Core Capital Goods Orders MoM Feb P -0.1% 0.1% 0.9% 0.8%
Core Capital Shipments Orders MoM Feb P 0.0% -0.1% 1.0% 0.8%
Wards Total Vehicle Sales Mar 17.50m 16.80m — 16.56m
ISM Non-Manufacturing Index Mar 56.1 58.0 — 59.7
Change in Nonfarm Payrolls Mar 196k 177k 33k 20k
Unemployment Rate Mar 3.8% 3.8% — 3.8%
Average Hourly Earnings MoM Mar 0.1% 0.3% — 0.4%
Average Hourly Earnings YoY Mar 3.2% 3.4% — 3.4%
Labor Force Participation Rate Mar 63.0% 63.2% — 63.2%

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