Main takeaways:

  • Labor market surprisingly resilient: services unabated by manufacturing slump.
  • But the weakness in manufacturing hours/employment needs to be seen in the context of an incipient rebound in US manufacturing activity (ISM bottomed in February).
  • Wage trend appears to be unchanged (not slowing down, but not speeding up either).
  • Unemployment rate has stabilized at the top of Fed’s NAIRU.
  • The 6-month increase in participation rate is big; last time it happened was 1992.
  • Well-behaved wages and increase in labor supply takes the pressure off the Fed (less ammunition for the hawks).
  • BUT that does not mean the markets are right! Mkt consensus is even more dovish than Yellen – something that does not make much sense in the face of strong labor market, rebound in manufacturing, strong consumer confidence, easing of financial conditions, firming of inflation.

Charts and more details: