Robust March Payrolls Report Boosts Growth Prospects for the US Economy

US stocks rallied while Treasuries sold off marginally as strong domestic economic data boosted confidence in the US economy.  The March nonfarm payrolls report continued its strong performance and showed job creation in the labor market remains robust.  The report showed US companies added a solid 215,000 jobs last month and wage growth ticked up 0.3% for the month (+2.3% annualized).  Job growth was led by the construction and retail sectors, but healthcare, leisure and hospitality, and professional services also contributed.  The headline unemployment rate increased to 5.0%, largely due to an uptick in the participation rate, which supports Yellen’s theory that some slack remains in the labor market.  Without the increased participation rate, the unemployment rate would have been reported at 4.8%.  Overall the report was strong and the rebound in wages was reassuring, but not likely to alter the Fed’s cautious approach in light of international headwinds.  A separate economic release today showed US factory activity expanded in March for the first time since last summer.  The ISM’s manufacturing index rose to 51.8 from 49.5 in February, indicating the sector may finally be regaining its footing after suffering from the effects of a strong dollar and slowing global economy.

A 3.5% drop in WTI crude prevented a more significant rally in risk assets.  The pressure on oil was sparked by comments from the Saudi Arabian deputy crown prince that his country would only freeze production if Iran and other major producers agreed to do the same.  OPEC and other major oil producers are scheduled to meet later this month, but skepticism over the likelihood of such a deal continues to rise.  As part of the same Bloomberg interview, the deputy crown prince outlined Saudi Arabia’s plan to create a $2 trillion sovereign wealth fund to reduce the country’s dependence on oil.  Following the IPO of the state-run oil firm Aramco, the fund will be the largest in the world.
 
All three major US stock indexes are in the green less than 0.25%, while Treasury yields and swap rates are 1-4 bps higher across most major maturities.