Why the jobs report will be important, even if no one is around to trade it


If a jobs report lands with no one around to trade it, does it make a sound?

That is the situation confronting the Labor Department’s release of March nonfarm payrolls, which comes as U.S. and European stock markets are shut in observance of Good Friday.

There is, to be fair, a few markets that will be open. The bond market will be open through noon, and stock market
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futures will trade through 9:15 a.m. Eastern. And the currency market is never closed.

But even if there is a limited immediate reaction to the jobs numbers, they will carry importance for markets going forward. Economists polled by Dow Jones Newswires and The Wall Street Journal expect 675,000 jobs were created in March, which would be the best reading since October. Even a gain of a million — not out of the realm of possibility — would still leave the U.S. economy some 8 million jobs short of pre-pandemic levels.

David Rosenberg, chief economist and strategist at Rosenberg Research, points out that if the leisure and hospitality sector, airlines, and state and local governments hired back all 5 million that have been let go, the economy would still be short on jobs. “What all this says is that in this period of history, companies learned they could produce the same or more with less labor input. That is why even with the worst year for real GDP since 1946, [2020] was the best year for productivity in a decade,” he says.

That big gap is why the Federal Reserve is nowhere near lifting interest rates, even as inflation readings are likely to jump in the coming months. But what the central bank could do this year is slow the rate of bond purchases, a step that will have huge financial market implications, given the focus on this year’s rapid rise in the yield of the 10-year Treasury
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Federal Reserve Chair Jerome Powell said asset purchases would continue at the current speed until “we see substantial further progress, and that’s actual progress, not forecast progress.”

“The Fed’s new framework may be centered on inflation, but the decision to taper will be driven solely by the labor market,” says Aneta Markowska, chief economist at Jefferies. If the unemployment rate, 6.2% in February, can drop below 5% by the middle of the year, that should be enough to start discussions about tapering, she says.

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