Will the explosive Non-Farm Payrolls end the recession narrative?

March U.S. nonfarm payrolls data reversed February’s weakness and moved into a situation where both employment and the unemployment rate improved. In particular, the monthly nonfarm employment count hit the highest level since December 2024, so exaggerated that it exceeded the Wall Street Journal’s ten-year historical forecast range for this indicator. Could it be that, just one month later, the U.S. economy has shifted from recession to a sky-high acceleration—an additional takeoff? Will the narrative of recession trading come to an end here?

1. Unveiling the reasons behind the stunning March nonfarm blowout

In March, the U.S. seasonally adjusted nonfarm payroll employment population increased by 178k, far above expectations of 60k. Private nonfarm employment rose by 186k, also well above expectations of 70k. The unemployment rate was 4.3%, slightly down from the prior value and the expected value of 4.40%.

What factors created this strong combination of employment data?

• Weather: Employment shortfalls caused by February’s weather effects are an important reason for the downward revision of the prior value. The current downward revision of 4.1w people mainly came from revisions to “trade, transportation, and utilities.” This part of employment was made up in March, mainly reflected in a rebound in jobs in construction, transportation, and leisure and hospitality. According to statistics, in March the number of jobs that could not operate normally due to weather impacts was 9.1w, below the 14w level in the same period over the past 10 years.

• Strikers returning to work: The medical employment data held back by strikes in February saw a significant rebound in March as strikers returned to work.

• Model adjustments: This factor also contributed in the February data analysis. Because the Department of Labor began adding current sample information into the birth-death model and reducing smoothing, the volatility of nonfarm data has been amplified since February. This means that in the future we may see nonfarm data following a trajectory like a bungee jump.

2. The U.S. economy still has risks that cannot be ignored

First, although the March employment data look impressive on the surface, the decline in the labor force participation rate and the continuing slowdown in growth of average hourly earnings are risk points that cannot be overlooked. Among them, the year-over-year rate of average hourly earnings has already fallen to a new low since 2022, indicating that companies do not have strong hiring demand. At the same time, it is also worth noting that the statistics for this round were compiled in a period not long after the outbreak of the Iran-U.S. conflict; on the corporate side, they likely have not yet incorporated the Iran-U.S. conflict into their hiring decision-making systems.

Additionally, the March U.S. S&P services PMI was 49.8, a new three-year low, having already fallen below the break-even line, forming a sharp contrast with the gradually warming manufacturing sector, which shows that momentum in the U.S. services industry is continuing to deteriorate.

3. Summary: Is the recession narrative really over?

At present, although the U.S. economy does not appear to have a high probability of a hard landing, the risks lurking beneath the surface are also thorny. As we mentioned in “How much farther are we from a recession trade?” at this stage there is still some distance before shifting back to a recession narrative, and this round of nonfarm data has pushed that distance a bit farther.

Compared with recession, what is more worth worrying about in the short term is how exactly Trump, who’s been firing off furious insults, and Iran, which refuses to back down, will ultimately wrap up their situation—how a return to international oil prices at 110 will affect global inflation. The U.S. March CPI data this Friday will undoubtedly be a very critical signal. After February’s PPI massively beat expectations, the March CPI year-over-year forecast is 3.4% (prior value 2.4%), and the month-over-month forecast is as high as 1.0% (prior value 0.3%). It seems to be poised to keep feeding fuel to the “high-interest-rate prolonged war.” Right when expectations for Fed rate cuts within the year have effectively turned to zero and the U.S. dollar index is hovering around the 100 level, CPI could become the key moment that determines the direction of global financial markets.

Source of this article: Good Morning FX Markets

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