 | Non-Farm Payrolls Increased 88,000 in March, Below the Consensus Expected 190,000 |
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| Posted Under: Data Watch • Employment |
Implications: Get a grip. The report on the labor market is not strong, but it's not the very weak one many are saying. The most absurd commentary is that the federal spending sequester is hurting. Excluding the Post Office, which is not affected by the sequester, government jobs were up 5,000 in March versus an average decline of 4,000 per month in the past year. The key negative today is that nonfarm payrolls only grew 88,000 in March, substantially below consensus expectations. But including upward revisions to prior months, the net gain was a respectable 149,000. (Nonfarm payrolls are up 159,000/month in the past year.) Meanwhile, average weekly hours ticked up to 34.6 from 34.5, the equivalent of 330,000 jobs. As a result of the longer workweek, total hours worked increased 0.3% in March and are up 2.1% from a year ago. Average hourly earnings were unchanged in March, but still up 1.8% from a year ago. As a result, total cash earnings are up 3.9% from a year ago, or about 2.2% when adjusted for inflation. Ironically, it was the household survey, which generated the best headline, where the details were the weakest. The unemployment rate dipped to 7.6% in March, a new recovery low. But it was due to a 496,000 drop in the labor force while civilian employment, an alternative measure of jobs that includes small business startups, declined 206,000. Departures from the labor force pushed the participation rate down to 63.3%, the lowest since 1979. Keep in mind, however, that monthly changes in the labor force are volatile and in the past year the jobless rate has dropped 0.6 percentage points while the labor force is up 219,000. In other words, the downward trend in the jobless rate isn't due to a shrinking labor force. The big question is how the Federal Reserve reacts. It says a jobless rate of 6.5% could get it to raise rates. But, today's report undercuts its projection we won't reach 6.5% until mid-2015; it supports our case for mid-2014. Some comments suggest an alternative indicator is the share of unemployed who have quit their old job before they have a new one, a sign of confidence. But the quit rate rose in March to 8.4%, so the Fed may have to look elsewhere if it wants an excuse not to raise rates in 2014. Obviously, the labor market is very far from perfect. The unemployment rate is way too high and payroll growth too slow. What's holding us back is the huge increase in government, particularly transfers, over the past several years. Despite that, the plow horse economy keeps moving forward.
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