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On the face of it 98,000 jobs seems like a shockingly low number and represents the weakest pace of job creation in the US since May 2016.

But economists and strategists on Wall Street note the slowdown in the headline figure isn’t all bad and debate what it means for the Federal Reserve that has signalled two additional rate rises this year.

Luke Bartholomew at Aberdeen Asset Management suggested the slowdown in job creation could be seen as a sign that the economy is approaching full-employment. He said:

Headline payrolls number was a big miss on the downside. Rather than being interpreted as a negative it could be seen as the economy approaching full-employment, or at least the labour market now being pretty tight. The slowdown in payroll growth is exactly what you would expect when the economy closes in on full-employment. So yes the data was a little weaker, but it won’t change the outlook on monetary policy. The Fed still on course for at least two more hikes this year.

Ian Shepherdson at Pantheon Marcoeconomics, highlights the impact that weather had on hiring and warned that if the unemployment rate were to continue to fall it could be disconcerting for the Fed. He said:

The payroll number almost certainly was depressed by the snowstorm in the northeast during the survey week, given that all the leading indicators are consistent with a 200K-plus trend. Policymakers will expect a rebound in April.

More importantly, the unemployment rate is now at the bottom of the Fed’s forecast range for Q4 this year – the March drop was statistically significant – and below the bottom of the Fed’s 4.7-to-5.0% range for the Nairu. It shows no sign of bottoming. For the Fed, the unemployment rate is the ultimate arbiter of the tightness of the labor market, and the prospect of the rate continuing to fall towards 4% will be very disconcerting.

Paul Ashworth at Capital Economics said there was some payback in March from construction hiring:

The main weakness in March was in construction, which added only 6,000 jobs, leisure & hospitality, which added only 9,000 jobs, and retail, which lost 29,700 jobs. Over the first two months of the year, employment in those three sectors increased by an average of 70,000 per month. In March, it fell by 15,000.

However, James Knightley at ING pointed to the weakness in retail employment and noted that it ties in with weaker consumer spending and said investors should consider the odds of just one additional rate rise by the Fed this year, instead of two. He said:

Weak spending growth is also consistent with the poor retail jobs numbers within the report. Nonetheless, consumers are upbeat with sentiment close to cycle highs.

This is likely to be down to the healthy jobs market, but could also be partially due to President Trump’s promises of “massive” tax cuts. If tax cuts are delayed or watered down by Congress then we may see sentiment drop back. In an environment where consumer spending is looking a little vulnerable the market may consider scaling back its expectations for Fed policy tightening – next week’s retail sales report could be an interesting barometer.

Neil Wilson at ETX Capital argued that this report alone wouldn’t stay the Fed’s hand from two more rate rises this year. He said:

This is the first really bad NFP miss since September of last year and that, coupled with some heightened geopolitical risk, has unnerved the market a touch. But we have to see it context – the overall trend remains one of very strong job creation. And it’s still a decent number that is way above the paltry 38k registered in June 2016.

This alone won’t stop the Fed from hiking twice more this year. A war in Syria might – geopolitics has taken on much greater significance again.

Copyright The Financial Times Limited 2017. All rights reserved.
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