March Employment Report

KEY DATA:  Payrolls: +916,000; Private: 780,000; Restaurants: +176,000; Construction: +110.000; Unemployment Rate: 6% (down 0.2 percentage point)

IN A NUTSHELL: “This is just the start of some really great job numbers.”

WHAT IT MEANS:  The economy is on the mend and the rehiring of workers is following the reopening of firms. In March, the rise in payrolls was massive.  The gains were across the board as 71% of the industries reported an increase in employment.  That is huge. The biggest increases were in those industries expected to lead the way: restaurants, hotels and health care in particular. But there were large numbers of workers added in education, as schools are reopening and manufacturing, as demand for goods keeps rising.  The construction sector also hired an enormous number of workers, but the February freeze, which led to a temporary decline in employment, played a role in that.

On the unemployment front, the numbers were just as good.  The rate declined despite a solid rise in the labor force.  As the job market continues to firm, more workers will come back into the market and that might slow the fall in the unemployment rate.  That is already happening, as the participation rate increased, though not nearly as rapidly as it will likely do in the months to come.  In another positive sign, the number of people who could only find part-time work declined.  That shows that firms are more confident about the future and are willing to hire people full time.    IMPLICATIONS:  The economy was in good shape before the pandemic hit and the government had to shut things down.  But instead of watching as the economy burned, the government stepped in to keep businesses going and support households with massive amounts of stimulus.  The result is once the pandemic started to ease and the economy started opening up again, firms that would have gone bankrupt were still “operating” and ready to hire back workers that had been moved from the private sector payrolls to the government assistance programs.  The “zombie” businesses are helping generate the huge job gains we are seeing, and which we will likely continue to see, since the latest stimulus bill provides funds through September.  The question we are facing going forward is not will the employment numbers be strong, but how many of the lost positions will ultimately return.  There are still about nine million fewer positions in the private sector than we had in February 2020, so there is still a long way to go to get back to where we were.  We can expect additional massive monthly hiring numbers as the vaccination process proceeds, allowing more firms to reopen completely.  Thus, what we saw today is not the last time job gains in the half to one million range will be posted.  That raises the question about inflation.  With growth accelerating, costs are likely to rise more rapidly as well.  Actually, they are already doing so.  There may be some wage pressures as well, since we are starting to dig into the reserve army of the unemployed.  Expect inflation to get above the Fed’s average long run target of 2% soon and stay there for an extended period.  But while the markets may price in higher inflation and interest rates will rise, the Fed is still expected to stay on hold until the stimulus ends and the economy shows it can stand on its own.  That is not likely to be the case until well into 2022.