Don’t Panic Over Weak March Jobs Report

By Robert Hughes

The headline payroll number from the March jobs report shows a gain of just 98,000 jobs in the month. That number was well below the consensus estimate of 180,000. Adding to the disappointment were net downward revisions of 38,000 to prior month’s gains. Initial reaction to such headlines have been negative. However, when all the details of the report are considered and viewed in historical perspective, this report supports a positive outlook for economic growth in 2017.

The addition of just 98,000 new jobs is a weak number. However, the two prior months, even with the downward revisions, averaged 217,500. Combined with the latest month, the three-month average comes in at 178,000. For historical perspective, the 12-month average gain is 182,000 and the average over the past five years is 202,000. Over the past five years, the three-month average has ranged from a low of 90,000 to a high of 293,000. That puts the current three-month average of 178,000 at the 43rd percentile over the past five years. The media tend to hype every zig and zag in every economic report. It’s important to analyze the data carefully, analyze the underlying details, consider each report in the context of all the other economic reports and always keep everything in historical context.

Among the industries, goods-producing industries are showing good gains recently, adding 28,000 in March. The three-month average jobs gain for goods-producing industries came in at 58,000 compared to a 12-month average of 18,000. Mining and logging, construction, and manufacturing all added workers in March and all have three-month average gains greater than their 12-month average gain.

Private-service producing industries were noticeably weak in March, adding just 61,000 jobs compared to a three-month average of 113,000 and a 12-month average of 151,000. Retailers led the way on the downside, losing 30,000 jobs in March after cutting 31,000 jobs in February. The best-looking industry among private services was the professional and business services category, adding 56,000 jobs in March while averaging 50,000 and 53,000 over the past three and twelve month periods, respectively.

For the economy overall, the unemployment rate fell 0.2 percentage points to 4.5 percent, the lowest since 2007.  Broader measures of underemployment also fell, including the broad U-6 rate which measures unemployed, marginally attached workers, and workers working part-time for economic reasons.  The U-6 rate fell 0.3 percentage points to 8.9 percent, its lowest since 2007.

The participation rate held steady at 63.0 percent as 145,000 new workers joined the labor force.

Average hourly earnings rose 0.2 percent in March and are up 2.7 percent from a year ago. The length of the average workweek held steady at 34.3 hours.  When hours worked are combined with hourly earnings and total jobs, the index of aggregate weekly earnings, a proxy for take-home pay, rose 0.2 percent for the month and are up 4.1 percent over the past year, equaling the average growth rate over the past five years. A growth rate in the 4 to 5 percent range should support further gains in consumer spending.

Overall, the headline was a downside surprise but many of the details, especially when considered in historical perspective, paint a positive picture of an economy that is likely to continue to grow in the months and quarters ahead.

 

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.