Instant Analysis: Employment report for March
As advertised, the U.S. employment report for March was another piece of positive economic news, illustrating the momentum of labor market improvement and the steady nature of the U.S. economic recovery despite significant headwinds from abroad.
Nonfarm payrolls advanced by +215K jobs last month, about in line with my estimate of +220K, and a bit better than the consensus estimate looking for +205K jobs. The 3-month moving average of monthly job gains is now 209K jobs a month, a robust pace that will be difficult to maintain over the longer-term horizon.
Broad-based job gains were seen across industries, led by private service sector growth (+199K), retail trade (+48K), construction (+37K) and government (+20K). Education and health care (+51K), and leisure and hospitality (+40K) sectors alone added a combined +91K jobs in March.
On a weaker note, manufacturing job losses accelerated to -29K in March. Over the last two months manufacturing has lost a net -47K jobs. Weak demand, excess manufacturing capacity from abroad, and a strong dollar are clearly still weighing on the U.S. manufacturing sector. Manufacturing job losses in March were concentrated in the durable goods, primary metals, and semiconductor and electrical components manufacturing sectors. Mining employment, which includes the energy sector, lost another -12K jobs in March, and is down -185K jobs since September 2014.
Wage and income growth appears to be responding to the tightening labor market. Average hourly earnings rebounded convincingly, +0.3% in March, following a disappointing -0.1% drop in February, and the year-on-year gain increased to 2.3% from 2.2%. This should reduce concerns that wage growth is not responding to lower levels of unemployment. We clearly see gradual improvements in average hourly earnings over recent months that we think is directly linked to the improving labor market balance, which is swinging rapidly in the average workers favor.
As if on cue, discouraged workers are returning to the labor market in droves. The U.S. labor force increased by another +396K in March and has grown by 1.92M people since December. The labor force participation rate improved again to 63.0% from 62.9% in February. Since last September, the labor force participation rate has improved by 0.6 percentage points, the first measurable improvement in labor force participation since this economic expansion started nearly 7 years ago.
The U.S. unemployment rate ticked up to 5.0% in March from 4.9% in February, but in this instance, it is a signal of labor market resilience rather than weakness as more folks searched for employment.
Bottom line: The labor market performance in Q1 must be impressing even Janet Yellen, especially in the face of some less than spectacular financial market and GDP growth performance. Job gains in retail sales and construction jobs bode well for a rebound in consumer spending growth in the months ahead. While the headlines from this report are going to read somewhat boring (“Moderate job gains continued in March,” for example), for the labor market, steady and boring month-on-month job gains are good news. S&P 500 futures are indicating lower by 0.69%, while shorter-term U.S. Treasury bond yields are on the rise, and the U.S. dollar is stronger in reaction to this report.