Tonight at 8:30 PM! The first non-farm payroll report released amidst Middle East conflict: Will the Federal Reserve lean towards cutting rates or raising rates?

①The U.S. Bureau of Labor Statistics (BLS) will release March nonfarm payroll employment data at 8:30 p.m. Beijing time tonight;②As the first U.S. nonfarm report covering the impact of the fighting in the Middle East, investors will undoubtedly closely examine the detailed figures in the employment report to assess the Fed’s specific rate path later this year.

The U.S. Bureau of Labor Statistics (BLS) will release March nonfarm payroll employment data at 8:30 p.m. Beijing time tonight. As the first U.S. nonfarm report covering the impact of the fighting in the Middle East, investors will undoubtedly closely examine the detailed figures in the employment report to assess the Fed’s specific rate path later this year.

It is worth noting that, due to the Good Friday holiday, U.S. stock markets will be closed tonight, so the greater impact from the nonfarm data may not become fully evident until next Monday. Of course, the foreign exchange and bond markets will still trade normally when the nonfarm data are released tonight. In a holiday atmosphere with relatively low liquidity, FX and bond market traders may need to be especially wary of market volatility being amplified.

How does the market expect tonight’s nonfarm to perform?

According to an economic survey of economists conducted by the media, the U.S. expects March’s net new nonfarm payroll jobs to reach 60k, reversing the unexpected drop of 95k jobs in February caused by large-scale strikes by healthcare workers.

If the data come in as expected, this monthly increase will be roughly in line with last March, and it may be enough to reach the current U.S. labor market’s “breakeven point”—the number of jobs needed to keep the unemployment rate stable amid a sharp decline in immigration.

At present, there is a wide overall divergence among Wall Street institutions in their estimates for tonight’s data—the most optimistic expects March nonfarm employment to rise by 150k, while the most pessimistic expects it to fall by 15k, marking a second consecutive month of “negative nonfarm.”

On the unemployment rate front, economists expect the U.S. unemployment rate in March to hold steady at 4.4%. Although by past standards, when U.S. nonfarm data in a given month grows only at a “single-digit” pace, it may look quite weak, figures like this may already be sufficient to keep the unemployment rate stable, and even amount to a decent data performance.

Guy Berger, Chief Economist at Homebase, a provider of workforce management services for small businesses, said: “We need to recalibrate our understanding of good and bad employment data.”

In a press conference last month following the Fed’s decision, Fed Chair Jerome Powell also said that the breakeven point for U.S. employment growth is currently low. The figure the Fed cited earlier was about 50k, but he hinted it could be as low as zero now, which is reasonable in the context of a collapse-like decline in undocumented immigrants (which affects both employment numbers as the numerator and the labor force size as the denominator).

It should be noted that the volatility in the U.S. nonfarm reports over the past two months has been significant—January added 126k nonfarm jobs (far stronger than expected), while February unexpectedly recorded a loss of 92k jobs. Therefore, what revisions will be made to the first two months of data in tonight’s nonfarm report will be a major focus for market participants.

Was February’s nonfarm unusually weak or distorted?

Overall, industry insiders currently generally believe that the nonfarm data showing a reduction of 92k jobs in February is indeed ugly— but there may be some distortion behind it: around 30k workers from Kaiser Health Group and Starbucks were striking at the time and therefore were not counted in the labor force, while severe winter weather also strongly affected the construction industry as well as the leisure and hospitality industry.

If you exclude these two effects, the underlying job creation is actually close to a decline of 30k to 40k jobs. Although still weak, it would not be that drastic.

In looking ahead to the March nonfarm data, many investment banks are also currently forecasting that many of the unfavorable factors in the February employment data mentioned above will ease, and may even, to some extent, lift the performance of the March data. A strategist at TD Securities pointed out that they expect the number of nonfarm payroll jobs to increase moderately by 30k in March.

“Reversals of weather and strike effects should lead to an employment mix similar to late 2025, with a larger contribution this month from the healthcare sector. We also expect the unemployment rate to remain at 4.4%, despite upside risks. Average hourly earnings month over month may rise modestly by 0.2%, which corresponds to 3.6% year over year,” TD added.

Automatic Data Processing company (ADP) reported earlier this week that private sector employment increased by 62k in March. In assessing the report, ADP Chief Economist Nela Richardson said that overall hiring stayed steady, while employment growth during the month was tilted toward certain industries, including healthcare (which saw a sharp decline in February).

Goldman Sachs estimates that March’s new nonfarm payrolls will be slightly higher than the market consensus expectation—at 70k.

The positive nonfarm factors Goldman evaluated include a boost of 32k from the end of workers’ strikes; a seasonal rebound after growth was dragged down by harsh weather in February; and the average number of first-time claims for unemployment benefits falling to 211k in March, below February’s 220k.

On the negative factors side, Goldman Sachs expects government employment to decrease by 5,000 (the federal government declines by 10k, offset in part by an increase of 5,000 from state and local governments).

Mixed/neutral factors are that other indicators used to measure employment growth in March are mixed. Goldman’s tracked employment indicators on average point to employment growth of 69k in March.

Middle East conflict impact still limited for now?

As the first nonfarm report under the impact of the Middle East conflict, one thing many investors will want to know tonight is how large the impact of this conflict on the U.S. labor force really is. However, industry insiders generally believe it is still too early to judge how much impact the conflict will have on the U.S.’s vulnerable labor market; at least the March report is unlikely to show a very large shock.

Nancy Vanden Houten, Chief Economist at Oxford Economics, said in a statement on Thursday: “The war between the United States/Israel and Iran makes the labor market more fragile, but any impact will take time to show up. The latest unemployment-benefit claims confirm this—these data indicate that conditions in the labor market are stable.”

Goldman Sachs is currently the only firm that explicitly models the impact of an oil shock on the labor market. The bank estimates that by the end of the year, the average number of employed people in the United States will be dragged down by about 10k per month, mainly concentrated in the leisure and hospitality sector as well as retail, because energy costs erode households’ real income.

However, Goldman noted that the key is the time lag of how the conflict’s effects transmit—often 4 to 8 weeks. The hiring during the March nonfarm survey week mainly reflects sentiment from late February to early March—so the March data may still look acceptable, while April and May are when the real damage becomes visible.

Of course, given that this Middle East conflict has already caused markets to swing continuously between expectations of Fed rate hikes and rate cuts, tonight’s nonfarm data—good or bad—will, to a large extent, still influence the direction of the Fed’s rate-balance tilt.

In terms of interest-rate pricing, before the Iran-U.S. conflict broke out on February 28, overnight index swaps (OIS) had priced in Fed rate cuts of more than twice this year (25 basis points each). Then those expectations were erased due to inflation concerns, and traders began pricing in the possibility that the Fed’s next move would be a rate hike. But recently, the market has started pricing again that the Fed may be closer to cutting rates.

Tom di Galoma, Managing Director at Mischler Financial Group, said: “This nonfarm data is very likely to be stronger than what the bond market expects. Before the upcoming four-day Easter holiday in the U.K. and Europe, the market has been running risk avoidance and position closures throughout the week.”

The Fxstreet analyst team also pointed out that if nonfarm payrolls show an unexpectedly strong print above 70k, it could prompt the market to reassess the probability of Fed rate hikes and boost the U.S. dollar. Conversely, if the data come in below 50,000—especially if the unemployment rate rises—the dollar may have difficulty outperforming other currencies.

（Source: 财联社）