Jobless claims and ADP data positive ahead of jobs report

Later this morning, the US Bureau of Labor Statistics will release the March 2017 jobs report. The consensus is for a net addition of 178,000 jobs, down from February’s 235,000. The unemployment rate is expected to remain unchanged at 4.7%. Other data show the risk is to the upside here.

First, jobless claims came in at 234,000, taking the 4-week average back down to 250,000, which compares favourably to the 270,250 average a year ago. I think claims at this level are consistent with around 200,000 jobs being added each month to US payrolls.

And the ADP data on Wednesday confirms this, with the private sector adding 263,000 jobs in March according to the numbers released on Wednesday. Because this number was so far ahead of expectations and much larger than February, it makes the 178,000 consensus for non-farm payrolls look a tad low.

Why this matter: As I wrote yesterday, the Fed’s tightening mode is poised to become more aggressive as the year goes on. If data like these continue to come in on the jobs front, we will see the Fed meet its three hike forecast for 2017 and add perhaps one more. But robust jobs data will also impact the timing of the Fed’s balance sheet reduction. The higher the numbers we get, the more likely we are to see the Fed start its ‘reverse QE’, with early Fall as an aggressive target date.