March Employment Report

KEY DATA: Payrolls: +196,000; Private: +182,000; Manufacturing: -6,000; wages: +0.1%; Unemployment Rate: 3.8% (unchanged)

IN A NUTSHELL:  “Job gains are back on track, but the trend is still down.””

WHAT IT MEANS:  After the initial report that only 20,000 new positions were added, angst about the state of the economy took hold, at least with those who actually think that a single month’s number means something.  Today, those same worrywarts are probably smiling.  Job gains came in above expectations in March and there were some minor, but positive revisions to the January and February numbers.  But the details don’t tell me that this was a great report.  As I have mentioned frequently, concentrate on the three-month moving average.  That number decelerated again and will likely continue to do so as the January number disappears when we get the April report.  Private sector job gains were solid but not great over the past three months, averaging 168,000As for March, there were really only two strong sectors, health care and restaurants, while manufacturing and retail were down.  A bounce in state and local government hiring, which I don’t expect to continue, helped push up the overall gain.

But the real disappointment was in the household portion of the survey.  First, wages rose minimally and the increase over the year decelerated.  That was a real surprise given all the stories of firms raising wages.  That may just be a one-month wonder, but it is something to watch.  We need stronger, not weaker wage gains if the economy is to growth faster.  Second, the labor force participation rate declined and looking over the course of the year, it has wandered around in a relatively tight range.  In March, it was only up 0.1 percentage point over the March 2018 number.  While the downward trend that we had seen since spring 2000 has been arrested, there has been no sudden surge despite the labor shortages.  That does not bode well for the future when job gains are softer.  The unemployment did remain at 3.8%, which is well below what most economists believe is the long-term trend.

MARKETS AND FED POLICY IMPLICATIONS:  Don’t get me wrong, this was a very good report.  But given the wild swings in job gains – 312,000 in January, 33,000 in February, 196,000 in March – it does not tell me the labor market is continuing to be a lean mean jobs machine.  Private sector hiring is decelerating and wage gains might be moderating as well.  The outsized increases in health care, restaurants and state and local government are likely to unwind in April.  Investors will probably enjoy this report, but its impact should wear off pretty quickly:  It’s just not as strong as the headline number implies.  This is the last jobs report before the Fed meets at the end of the month, so the members will be able to say that job gains have stabilized.  That gives them the cover to keep doing what they have been doing, which is nothing.