Employment Situation Remains Grim
Civilian Unemployment Rate: 8.5% in March vs. 8.1% in February, cycle low is 4.4% in March 2007.
Payroll Employment: -663,000 in March vs. -651,000 in February, net loss of 86,000 jobs after revisions of payroll estimates for January and February.
Hourly earnings: +3 cents to $18.50, 3.35% yoy change vs. 3.59% yoy change in February, cycle high is 4.28% yoy change in Dec. 2006.
The headlines and details of the employment report present a dismal picture of employment conditions in the U.S. economy. The main message is that the Fed is on hold for the foreseeable future. That said, there are positive aspects in the report we are watching closely – employment in construction, manufacturing, and temporary help (see charts 7 and 8) – and it is a matter of time before we can conclude if in fact these are meaningful signals of economic recovery.
Household Survey – The unemployment rate rose to 8.5% in March from 8.1% in February. A broad measure of unemployment (which includes those working part-time because they cannot find full-time jobs and those not looking for work but want and are available in addition to those included in the tally of unemployed in the headline jobless rate) was 15.6% in March vs. 14.8% in February, the largest since record keeping for this series began in 1994 (see chart 1). In a short period of six months, the jobless rate has risen 2.3 percentage points, one of the largest gains in a six-month period (see chart 2).
The number of people unemployed for six months and over (3.182 million) is the largest on record (see chart 3). The number of people working part-time is at a record high of 9.049 million (see chart 3).
From a historical perspective, the unemployment rate has now risen 4.1 percentage points from a cycle low of 4.4% in March 2007, which exceeds the median increase (3.2 percentage points) in the jobless rate during business cycles of the post-war period. The average increase of the jobless rate from cycle low to cycle high is 3.24 percentage points.
Establishment Survey – Nonfarm payrolls fell 663,000 in March after declining 651,000 in February and 741,000 in January (see chart 4). The weakness in hiring was widespread in March, with health care employment (+14,000) as the only category to post gains. The diffusion index of employment was 22.0 in March (see chart 5). This index has moved in a narrow range of 20.5-22.1 in the last four months.
From a historical standpoint, non-farm payrolls have dropped 3.72% from the peak in December 2007, the largest decline since the 1957-58 recession (see chart 6).
Highlights of Job losses:
Factory jobs: -161,000 in March vs. -169,000 in February.
Autos: -16,100 in March vs. -13,700 in February
Construction jobs: - 33,000 in March vs. -27,200 in February.
Temporary help: -71,700 in March vs. -77,200 in February.
Retail: -47,800 in March vs. -50,800 in February.
Financial activities: -43,000 in March vs. -44,000 in February.
Professional and Business Services: -133,000 in March vs. -178,000 in February.
The noteworthy aspect to track in the months ahead is the pace of job losses in the factory and construction sectors and also that of temporary help. As shown in charts 7 and 8, the pace of monthly job declines appears to be decelerating, which we can confirm only in the months ahead as these data will be revised.
The weakness in man-hours worked overall (-1.0% in March, -8.7% annualized decline in Q1) and in the factory sector (-2.1% in March, -24.9% annualized drop in Q1) suggest large declines in real GDP and industrial production, respectively (see chart 9) in the first quarter.
Hourly earnings rose 0.2% in March to $18.50, putting the year-to-year increase at 3.35%, a significantly soft trend in earnings. The earnings and payroll data point to a drop in the wage and salary component of personal income during March. Wages and salaries have fallen for four consecutive months.
Weekly Policy Update
Credit market spreads have narrowed slightly in the past week from the short-end (chart 11) to the long end (chart 12 and 13). The spread between the 3-month Libor and 3-month Treasury bill rate was 95 bps as of April 2, down from the recent high of 112 bps in early-March. The Moody’s Baa -10-year Treasury note spread was 570 bps on April 1, down from 588 bps on March 23. The yield spread between junk bonds and the 10-year Treasury note has narrowed nearly 200 bps from its high on March 9, 2009. The Fed’s actions have succeeded in bringing down the 30-year fixed rate mortgage to 4.78% for the week ended April 1, the lowest on record (see chart 14). The Fed’s balance sheet (see chart 15) continues to advance and was at $2.08 trillion for the week ended April 1, 2009.
