Top of the Morning: March jobs report, US trade policy, & the week ahead
The desk views the March employment report as a pivotal indicator of the U.S. labor market's resilience, despite a slight uptick in the unemployment rate to 4.2% and a moderation in wage growth. Per the full note from UBS, the report revealed solid non-farm payroll gains of 228,000, which exceeded expectations, although revisions to prior months indicated some softness beneath the surface. This backdrop supports a more cautious approach to U.S. trade policy, especially after recent tariff announcements that could impact market dynamics. Currently, consensus targets among firms show a recognition of these labor market trends, with focus shifting towards how they will shape the broader economic landscape moving forward.
What the desk is arguing
The U.S. labor market remains strong, as evidenced by the addition of 228,000 jobs in March, despite upward revisions and a rising unemployment rate. UBS economist Brian Rose highlights that while average hourly earnings have moderated to 3.8% year-over-year, the labor market's balance is still favorable. This perspective reinforces the desk's belief in continued economic resilience amid evolving trade policies.
The reported job openings stood at 7.6 million, down slightly from previous levels, showing that while demand for labor is stabilizing, there remains a robust vacancy rate relative to the number unemployed. This balance hints at sustained consumer spending power, which the desk believes will be crucial in the months ahead as tariff repercussions unfold.
Where it sits in our coverage
Our current consensus target for the USD is 1.075, with a range of 1.04 to 1.12. Notable targets from our tracked firms include: - jpmorgan: 1.10 (Mar 26) - bofa: 1.04 (Mar 26)
The view articulated here aligns closely with the jpmorgan forecast, which also reflects a cautious but optimistic stance in light of recent employment figures, while diverging from bofa's more bearish outlook.
How other firms see it
Firms like jpmorgan and others are coalescing around a positive view of the labor market's strength, factoring this into their forecasts for the USD. In contrast, bofa continues to adopt a more pessimistic perspective on U.S. economic competitiveness as trade policy adjusts.
The discussion around the EUR/USD trajectory, particularly in light of Federal Reserve policy decisions, becomes increasingly relevant as we process these labor market trends against ongoing trade tensions. This correlation will be key to monitor as economic indicators shift.
What the calendar says
No major events on the calendar ahead, but traders should remain vigilant for any unexpected announcements regarding U.S. trade policy that could dramatically shift market dynamics.
01Solid U.S. labor market signals despite rising unemployment.
02Tariff implications remain a critical theme for market dynamics.
03Watch the interplay between job reports and Fed policy decisions.
04Consensus targets reflect mixed outlooks on the dollar.
Market implications
Traders should watch for movements around the 1.075 level for the USD, as insights from the labor market and tariff impact will shape expectations. Any unexpected tariff changes could lead to significant fluctuations, especially prior to key Fed assessments.
Risks to this view
An unexpected spike in unemployment rates or a significant downturn in consumer spending could force a reassessment of the labor market's strength. Additionally, adverse effects from recent tariffs on trade could lead to a bearish sentiment shift for the USD.
ubs
Hi everyone, Siobhan Chapman here and welcome to Top of the Morning on the UBS Market Moves podcast channel. It's Friday morning, which means it's time for the Week in Review and Preview conversation, where my guests will recap how markets have performed over the past few sessions and previews you can expect in the week ahead. Today's conversation primarily focuses on March's jobs report as well as new tariff updates.
Joining us for the conversation, I'm glad to welcome back Senior Economist America's Brian Rose. Brian, welcome. We're happy to have you.
Good morning, everyone. Good morning, Brian. So let's get started.
Let's begin with the March employment report. How did the data come in and how would you characterize the current health of the U.S. labor market? Overall, this was a solid result.
We had the non-farm payrolls rising $228,000, which was more than expected, but there were downward revisions of $48,000 over the previous two months. And there's some special factors that helped to boost the payroll numbers. So we had some returning striking workers and also weather improved.
But again, hard to complain about this kind of number. The unemployment rate did tick higher to 4.2%. That's at the top of the recent range.
We haven't been above 4.2% since late 2021, but still within the recent range. So nothing too concerning there. And in terms of wages, average hourly earnings up three-tenths month over month, year over year has slowed to 3.8%.
So you are seeing some moderation in the pace of wage growth. But again, 3.8%, nothing really to complain about. And I'll mention here a couple of other related indicators we had this week.
We had jolts job openings down a bit in February to $7.6 million compared with the $7.1 million unemployed we had in this morning's data. Still a good balance in the labor market. And we had the weekly jobless claims remaining low.
So again, you add the states together, at least as of now, labor market still looks to be in quite good shape. So I want to move outside of the jobs numbers. What were some other notable data releases from this past week?
So we had the ISM PMIs out, which both manufacturing and non-manufacturing were weak. Manufacturing PMI fell back below 50. And you also see a more inflationary pressure in the data.
Obviously, lots of comments about the tariffs, especially on the manufacturing side, they're the ones who are paying these tariffs. And I think if you took the survey again today, you'd probably see a lot worse results now that the tariffs have been announced. And we also had the vehicle sales for March, that data this week showing a big surge in sales up 11% month over month.
And the anecdote is that people were, this is right at the end of March, people were showing up at the dealer saying, I just want to buy a car today, just taking whatever is on the lot because they're trying to beat the tariffs. And that will give a boost to at least the GDP tracking estimates for the first quarter. But it could set us up for even a steeper decline in the months ahead because we're having this front loading of the vehicle purchases.
Thank you so much for sharing your insights with us, Brian. So just on the topic of tariffs, what are your takeaways from this week's announcement from the White House? And what might the economic impact ultimately amount to over time?
Yeah, so we put out the global alert last night. So I'd encourage people to look at that. And of course, overnight, China announced that they're going to impose 34% tariffs on all imports from the US.
And this is something we mentioned in the alert that we're still in the stage of seeing what the retaliation looks like. And it's possible we'll see our side ratcheting up tariffs further in response to that retaliation. So we're still in the phase of the tariff situation getting worse.
And we just have to see how this plays out in the days ahead. But my view is that if these tariffs stay in place, there will be a recession. I think it's just too big of a shock for the economy to withstand.
If you think of it in terms of tax hike, this is by far the biggest tax hike we've ever seen in peacetime, more than 2% of GDP. So again, it's not reasonable to expect the economy can make it through this, especially when you consider the retaliation measures will be another negative for the economy. So really, I view it as a race against time, if the tariffs can be reduced soon.
And that could happen in a variety of ways. We could have negotiations. And the tariffs will be challenged in court.
There's some question as to whether the law gives the president the authority to make these huge tariffs. And based on emergency powers, there's also a bipartisan effort now in Congress to retake control of tariffs. So the Constitution gives the right to set these tariffs with Congress.
So you could see Congress reassert its authority to change the tariffs. So there are ways that the tariffs can come off. So a recession could be avoided if we see the tariffs coming up in a pretty short time frame.
But otherwise, I think it's a matter of time. We're waiting for companies to start laying off their workers in response, again, to this big shock. And once those layoffs start, it's hard to know where it's going to end.
Also note that we've added a couple of extra Fed rate cuts to our base case. So we're looking for 100 basis points of cuts this year instead of 50. And of course, the stagflationary pressure coming from the tariffs will leave the Fed with very difficult decisions to make.
But in the end, I think if the labor data starts to weaken, you see companies laying off their workers, the Fed's economic models are going to tell it that there's a huge downside risk to the labor market. So even though the tariffs push up inflation further above the Fed's target, I think they'll face a lot of pressure to start cutting rates. So again, it's not a good story.
There's no way to sugarcoat this. Unless the tariffs are rescinded soon, I think the economy is headed for trouble. So I want to turn to next week, Brian.
What is taking place that investors should be mindful of? So we do have some key data releases next week, including the CPI and PPI. And even though, again, I just said the Fed could cut rates even with inflation higher, I think this data is important because we're expecting relatively small increases this month.
And that might help convince the Fed that outside of the tariffs, at least, inflation trends are looking good. We'll also get the NFIB survey of small businesses. Obviously, there you're seeing a lot of these businesses are not happy, are not going to be happy with the tariff threat.
And also, we'll get the latest University of Michigan consumer sentiment reading. This has really cratered recently. And we'll also get FOMC met from the March meeting, although I'm not sure how relevant that is at this point.
And one other thing to keep a watch on is negotiations over the reconciliation budget. So the Senate and House passed very different versions of this, and they need to pass the same bill in order to get started on the actual budget itself. This is just a budget outline, and this is a hurdle that has to be cleared before the final negotiations over the bill can start.
And we were seeing yesterday reporting that the deal had been reached between the House and Senate leaders. But now this morning, there's other reporting suggesting there's a lot of complaints in the House about the Senate's proposal. They're trying to get this thing over, getting a pass through Congress in the next couple of days.
So we have to watch these developments and see if they can twist enough arms to get something through both the Senate and the House. This is at least something positive that people are looking forward to. Maybe there's going to be some additional tax cuts in that reconciliation package.
But there are fears of what happens if Republicans can't agree among themselves and they have difficulty getting anything across the finish line. Thank you so much for joining us, Brian. We look forward to having you again next month.
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