Weakness in payrolls was bound to happen. US job growth has been running at a stupendous pace over the last several months, increasingly out of tune with other economic indicators, which have pointed to a slowdown. The reckoning in March closes at least some of this gap.
Yellen's recent testimony emphasized that monetary policy decisions will depend on conditions in the labor market. One month may not be enough to change the Fed's mind, but a slower pace of job growth certainly moves the risks in favour of a later rate hike.
What is more, the downward revisions to the Feds' expectations for the long-run rate of unemployment (to a central tendency range of 5.0%-5.2%) gives it more time for improvement take place before ever so slowly pulling away the punch bowl.
According to TD Economics, "It's not all about wage growth, but pretty close. Should average hourly earnings continue to rise at the 0.3% monthly pace set in March, they will hit 3.6% year-over-year by December. Something to think about as we digest March's slowdown in job growth."
