March Jobs Report: Disappointing, But Not Terrible

The economic added 759,000 jobs in March – before seasonal adjustment, that is. That translated into a disappointing 88,000 gain in the seasonally-adjusted number. Figures for January and February were revised higher. The slower March figure could reflect a lagged impact from the payroll tax hike or February may have simply borrowed some strength from March.

Payrolls averaged a 168,000 monthly gain in the first quarter, roughly the same pace that we’ve seen over the last two years. If we were at full employment, we’d be right at the sweet spot. But we’re not. We have 11.7 million unemployed, 6.7 million others who want a job but are not officially counted as “unemployed,” and another 7.6 million working part time but who would prefer full-time employment. This slack in the labor market is consistent with the economy operating about 6% below its potential. While this loss of economic output is substantial, the human toll of unemployment is especially hard.

The financial press was quick to label the March payroll figure as “weak,” and it was relative to expectations. However, payrolls rose by a revised 268,000 in February. Mild weather may have pulled forward gains that would have otherwise occurred in March. The number of individuals who were unable to get to work due to adverse weather totaled 117,000 in March, vs. a 150,000 average for the same month over the last 10 years. The data also show that January and February were milder than average, but more so than in March. Unadjusted payroll figures are not out of line with the usual seasonal pattern.

The unemployment rate fell to 7.6% in March, but the decline was due to another drop in labor force participation. Some of the lower trend in participation (perhaps as much as a third) is demographics (the aging of the population as the baby-boom generation edges into retirement). The majority is due to individuals who have given up looking for a job.

Given the strength of the February payroll increase and the possibility of upward revisions to the March figure, we may not have much to worry about in the labor market. However, the March figure could reflect a lagged impact from the payroll tax increase. Most workers may not have been aware that the payroll tax rose in January (for example, people who have their paychecks directly deposited into their bank accounts typically don’t even see a paycheck). These individuals will eventually notice that their bank accounts are lower and adjust their spending accordingly. Some may have been aware of the payroll tax increase and decided to decrease savings or retirement contributions. Average weekly earnings have been trending roughly flat in recent years, but should pop a bit higher in March (nominal earnings picked up and lower gasoline prices should push the headline CPI figure lower).

For Federal Reserve policymakers, this is not the “substantial improvement” in labor market conditions they have been waiting for. The pace of job growth may be disappointing, but the trend is not terrible. We should see a moderate pickup in April and May, but it’s unlikely to be exceptionally strong.

© Raymond James

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