ISM amp ADP Warning for March NFP

It was a day filled of disappointments in US economic data; ranging from private sector jobs to manufacturing and construction.  Most ominously, the fact that March is the worst month for NFP disappointments seems in line with the rest of the month’s data. No, we’re not predicting NFP weakness as a result of today’s data. Instead, the historicity of March NFPs is sufficiently worrying. Friday’s reaction in FX and equities will be volatile to the say the least, particularly with Europe out for the Easter Holiday

Manufacturing ISM: Broad-based weakness

Today’s release of the March manufacturing ISM fell to 51.5 from February’s 52.9 posting its lowest level since May 2013.  The Employment index fell to 50 from 51.4, also hitting its lowest since May 2013.  The New Orders Index fell to 51.8 from 52.5 and the Production Index edged up to 53.8 from 53.7. The  export order index slumped to 47.5 from 48.5, registering its 3rd consecutive month below the 50 level, reaching the lowest since November 2012. The combination of a soaring US dollar and weakening growth in Europe and Asia are the main culprits. Earlier in the day, the March ADP report showed a slowdown to 189K, the first sub-200K reading since January 2014. It was also the biggest miss (less than expectations) since April 2013.

Economists at the ISM cited residual effects of the harsh winter as factors impacting orders and employment, while strikes at West Coast ports continue to be mentioned despite their conclusion last month.

Beware of March NFPs

The table below shows the consistency of misses (actual figure below consensus forecasts) in March NFPs over the last three years. In fact, NFP figures for the month of March have come in below forecasts in 6 out of the last 7 March reports with an average miss of -42k. Since 1997, March NFPs have come in below expectations at 2/3 of the time for an average miss of -81k. With this week’s NFP release expected at 250K from 290K, any disappointment alongside historical proportions would mean a figure below 200K, which would be the first since February 2014.

If that is the case, especially alongside weak average hourly earnings, then renewed USD weakness will ensue against JPY as plunging oil prices and a falling yen from the past three years combine to reduce Japan’s importing costs and further improve export competitiveness to the benefit of the currency. And with the breakout emerging in net JPY shorts vs USD, a return to 115 in USDJPY appears more viable than a return to 122.