Instant Analysis: March payroll report

Scott Anderson
Posted by Scott Anderson
Chief Economist
Key highlights:
  • A Solid But Not A Blow-Out March Payroll Report; +192K vs. Consensus Exp. +200K
  • Labor Market Shows More Signs of Firming
  • Unemployment Rate Steady at 6.7% as Labor Force and Household Employment Rises
  • Labor Force Participation Improves to 63.2% from 63.0%
  • Hourly Earnings Flat +0.0% in March; Avg. Hours Worked Jumps to 34.5 from 34.3


The markets got a solid and improving labor market snapshot for March, but not a blow-out payroll report as some analysts were expecting. We forecast +195K jobs for March and the actual number came in slightly below that at +192K. However, January and February payrolls were also revised up a net 37K, so the labor market picture is definitely brightening. The March payroll numbers were strong enough in our opinion for the Fed to continue on their $10 billion a meeting tapering path with an end to QE3 by the October FOMC meeting.

It appears the firming labor market is starting to attract more re-entrants into the labor force. We saw big gains in household survey employment (+476K) and labor force (+503K) last month. This was enough to push the labor force participation rate up to 63.2 percent in March from 63.0 percent in February; A solid sign that the Federal Reserve and FOMC has been looking for to confirm their progress toward their full-employment goals. Even more encouraging, the average duration of unemployment fell to 35.6 weeks in March from 37.1 weeks in February.

However the improvements we are seeing were not enough to push the headline unemployment rate lower as unemployment held at 6.7 percent. Even so, headline unemployment held steady for the right reasons. As the labor force participation rate increases with new entrants it will tend to keep the unemployment rate elevated until new jobs are found. This could slow the economy’s recent progress on bringing down the headline unemployment rate.

Private services payrolls improved again in March. Service employment increases continue to drive the vast majority of payroll gains: Professional and business services added (+57K), education and health (+34K), retail (+21K) and leisure and hospitality (+29K). Even information and financial services added net jobs last month.

The goods producing sector was more mixed. Construction added more jobs last month up (+19K), but manufacturing employment slipped (-1K). Still manufacturing employment appears to be on a solid up trend even with the disappointing gain in March as February manufacturing gains were revised significantly higher to (+19K) from a previously reported gain of (+6K). The Federal government also lost another (-9K) jobs last month.

The lone disappointment, in my opinion, was the weakness in average hourly earnings, which held steady on the month with the year-on-year gain slipping to 2.1% from 2.3%. We need stronger earnings gains to boost household incomes and push consumer spending to a higher growth rate. Hours worked made up for the slip in hourly earnings this month as workers made up for the hours lost in prior months due to weather disruptions. But long-term it could become a problem for our stronger consumer spending forecasts. We will be monitoring income trends closely in the months ahead.

Bottom-line, another solid employment report for March that brings the Fed closer to its goals on full-employment. The report fits in nicely with our stronger growth outlook for the second quarter and over the balance of the year. It also match’s well with the FOMC’s expectations for the labor market and likely means another $10 billion dollar reduction in monthly asset purchases at the next FOMC meeting at the end of April. Market reaction has been tentatively positive to this employment report, stock futures were up nearly half a percentage point, global commodity prices were generally rising, and the 10-year Treasury yield dipped slightly to 2.75 percent.


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