NFP React: Stocks have lackluster start for Q2, another Strong NFP report, ISM feeling supply chain challenges

US stocks are off to a lackluster start to the quarter after an impressive nonfarm payroll report and soft ISM manufacturing report.  The labor market remains strong and employers are making progress filling vacancies.  The ISM manufacturing report confirmed the great story being told about employment but also showed inflation is getting uglier and activity is slowing as supply chain issues persist.  Inflation pressures could soon lead to demand destruction so it might be hard to see equities remain upbeat as the US consumer starts to drain their savings. 

NFP

The latest nonfarm payroll report doesn’t tell us anything we already knew about the labor market.  US employers hired 431,000 workers in March, a miss of the 490,000 consensus estimate.  The February reading saw an upward revision from 678,000 to 750,000.  The unemployment rate fell even better-than-expected to 3.6%.  The participation rate is also rising as women return to the job market.

Wages posted the biggest gain since May 2020 and that will help the consumer battle surging inflation.  The US economy has recovered the majority of the jobs lost during the pandemic and now the focus remains on how bad inflation will get, but for now the Fed can go forward with aggressive tightening.

ISM

The March ISM manufacturing reading fell from 58.6 to 57.1, also missing the consensus estimate of 59.0.  This was still the 22nd month of expansion, but the lowest reading since September 2020.  Prices paid surged from 75.6 to 87.1 and new orders dropped from 61.7 to 53.8.  The only bright spot of the report was robust hiring that saw employment jump from 52.9 to 56.3. Supply constraints are still a key issue and that problem won’t be going away anytime soon. Manufacturing activity is still comfortably in expansion territory but if supply chain constraints remain a problem deep into the summer that could change. 

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya