Today’s payroll bust blew away the lower limits of the consensus forecast. Massive downward revisions in the January and February numbers, moreover, make the giddy optimism that infected U.S. forecasters at the beginning of the year seem like a bad acid trip in retrospect. The 126,000 payroll number along with downward revisions of 69,000 for January and February shows that the U.S. economy went into a dead stall at the beginning of 2015. It validates the Atlanta Fed GDPNow tracking forecast, which shows zero growth during the first quarter.
Asia Unhedged warned yesterday that risks were weighted to the downside, but the actual number confirms our gloomy read of the U.S. economy: after the deflationary dollar surge and the oil price bust, the U.S. got the worst of both worlds: cratering CapEx, lower exports and consumer caution. This trifecta of trouble gave us a negative number for goods production in March as well as miniscule growth in the McJobs categories that dominated the employment numbers during the past several months. How money months of falling retail sales could it take before retailers stopped hiring sales clerks?
The strongest number, as usual, was in health services (+30,000 vs. +34,000 in February), due to mandated spending under the Affordable Care Act. Retail added about 26,000 jobs vs. 32,3000 in February, but look for that to shrink in coming months. Goods-producing employment had one of its worst months in five years.
As Asia Unhedged noted yesterday, a disappointment on the payroll number meant the EUR/USD would trade above 1.10. With the German economy expanding nicely and Greece becoming irrelevant, the shift in economic activity to Europe from the U.S. might be enough to stop the Euro’s plunge toward parity. Asia Unhedged looks for a somewhat stronger Euro in coming days.
The Fed, in the quaint American expression, has been treed: it has nowhere to go and can only cling to its current position. We do not expect any change in the fed funds rate during 2015.
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