Your guide to the March NFP numbers

Ever since the final revised Q4 GDP for the US came in lower at 2.2%, down from 4.6% and 5% in the previous two quarters (Q2 and Q3 2014), the markets have started to question the strength of the economic recovery in the US. In recent days, some noted economists have also raised concerns about the impending rate hike from the Fed, calling it a bit premature and that if the Fed mis-timed the rate hike, it could take a lot more than usual for economic recovery to be sustained.

This concern has well seen the US Dollar index slow down in its bullish tracks as the trade weighted US Dollar index failed to break above the psychological 100 level and has retraced its gains ever since. Earlier this week, the ADP jobs numbers were disappointing missing estimates by a wide margin. The markets viewed this ADP private jobs data as a precursor to a weak NFP print.

But of course, the NFP expectations for March are already on the lower end of the scale and it would be tricky to base the NFP expectations based on the ADP numbers, which in recent past has not been very accurate to tracking the nonfarm payroll data.

The markets are expecting to see the US economy add 247k jobs in the month of March, down from 295k previous (in February) and also expect the unemployment rate to remain steady at 5.5%

These two variables, as always offer a lot of various combinations and how the markets would react to each of these scenarios. While it is easy to draw up conclusions, here are some important factors to bear in mind.

The average job growth in the US, month on month has been growing at a steady pace of 200k or more. Therefore, even if the NFP numbers for March fall below 247k, as long as the jobs print is above 200k, the markets will view this as a healthy growth. Then comes the aspect of the unemployment rate, which again might be misleading on the headline. Should the unemployment rate increase from 5.5%, the markets will look into the participation rate for clues. A rising participation rate, in this aspect would be seen as being bullish or at the very least a healthy growth.

On the other hand, another month of an improved unemployment rate could also make investors to question the aspect of participation rate which could turn out to be negative for the US Dollar.

Given the way things are, inflation has only started showing signs since last month of stabilizing, but we will most likely need to see another month or two of better inflation rate to ascertain the fact that consumer prices could push higher. The other factor, which is the labor market has so far been the sole economic point for the Fed to remain optimistic. Therefore, the March NFP and possibly the next couple of NFP numbers could prove to be important for investors to ascertain when the Fed would make its move.

Traders should also note that tomorrow is a major bank holiday across Europe, US, Australia and New Zealand and therefore trading volumes could be low. The usual volatility that comes with the NFP release tomorrow could be quite mixed and choppy to say the least. With some of the markets also closed on Monday, the volatility could likely remain low and result in choppy markets well into next week.