Markets expect a recovery in today’s March payroll report — The consensus is for today’s March payroll report to show an increase of +175,000, improving to a more normal level after Feb’s disappointing report of +20,000. The markets have so far been willing to write off the weak Feb payroll report as the result of payback after the string of strong reports in Oct-Jan that averaged +253,000 (Oct +277,000, Nov +196,000, Dec +227,000, Jan +311,000).
There was also talk that hiring might have taken a hit in February if employers pulled back temporarily to get a better read on the economy after the sharp downside stock market correction seen in Q4-2018 and the weaker economic data seen going into Q1.
In any case, payroll growth this year is likely to slow after 2018’s strong monthly average increase of +235,000. Payroll growth was boosted in 2018 by strong GDP growth of +2.9% that was sparked by the massive tax cuts. However, GDP growth is expected to slow to +2.4% in 2019, which will likely push average payroll growth down closer to the +180,000 area.
The consensus is for today’s March unemployment rate to be unchanged from February at 3.8%, which would leave the unemployment rate just 0.1 point above the 49-year low of 3.7% posted in September 2018. Today’s expected unemployment rate of 3.8% is basically right at the Fed’s forecast for the unemployment rate over the next three years (i.e., of 3.7% for end-2019, 3.8% for end-2020, 3.9% end-2021). Today’s expected unemployment rate of 3.8% would be 0.5 points below the Fed’s estimate of a long-term natural unemployment rate of 4.3%, illustrating the continued strength of the U.S. labor market.
The continued strong U.S. labor market should continue to put upward pressure on wages. The consensus is for today’s March average hourly earnings report to be unchanged from Feb’s 10-year high of +3.4% y/y. The strength in wages is putting at least some upward pressure on the overall U.S. inflation rate.
US/Chinese trade talks continue today but Trump downplays hopes for an imminent deal — The Liu/Lighthizer/Mnuchin trade talks that began on Wednesday will continue today. Chinese Vice Premier Liu yesterday met with President Trump.
President Trump yesterday dampened hopes for a near-term deal by saying, “We have a ways to go. We are rounding the turn.” He said that it might take another four weeks to get a framework deal and another two weeks to put the deal on paper. That timing would push the timing for a final deal out to mid-to-late May. Meanwhile, USTR Lighthizer yesterday said are still major issues to resolve. Mr. Trump said the main sticking points continue to be IP protection, tariffs, and enforcement.
In news Thursday evening, Chinese President Xi said that substantial progress has been made in the trade talks, according to state-run news agency Xinhua. President Xi said he called for an early conclusion to the trade negotiations in a message that he sent to President Trump through Chinese Vice Premier Liu at their meeting on Thursday.
May-Corbyn negotiations continue while House of Lords dawdles over no-deal Brexit bill — The talks will continue today between the negotiating teams of Prime Minister May and Labour leader Corbyn. The Conservative Party said yesterday’s 4-1/2 hours of talks were “productive” but the Labour Party only described the talks as “technical,” suggesting that the Labour Party may not be particularly impressed so far with what Prime Minister May is offering.
Prime Minister May is reaching out to Mr. Corbyn to see if he can deliver enough Labour votes to push her Brexit separation agreement over the finish line. Mr. Corbyn favors keeping the UK in the customs union and it remains unclear whether Ms. May is willing to go that far since that doesn’t even fall within the Conservative Party’s definition of Brexit.
If Ms. May can somehow pull off a miracle and get her Brexit separation agreement approved by Parliament before next Friday’s April 12 deadline, then the UK will be ushered into a smooth transition period through Dec 2020 during which nothing will change on current UK/EU trade relations.
On the other hand, if Parliament does not approve the Brexit agreement by next Friday, then the UK will either be forced into a chaotic no-deal Brexit or Ms. May will have to ask for another Brexit extension.
Parliament on Wednesday approved a bill that would require Prime Minister May to request a Brexit deadline extension beyond April 12 if Parliament does not approve the Brexit separation agreement. However, that bill is now bogged down by filibustering in the House of Lords, which may not vote on the bill until Monday.
If that bill receives final approval, then the markets will be pleased that a no-deal Brexit next Friday has likely been prevented. However, a no-deal Brexit could still happen if the EU unexpectedly refused to grant the deadline extension or if the UK government refused to pass the legislation necessary for the UK to vote for representatives to the EU Parliament on May 23.
