Non-Farm Payrolls: Return to Status Quo

The US labor market returned to form in March adding 196,000 non-farm jobs, better than the 180,000 forecast and easing concerns that February's weakness and a lackluster ADP report might herald a slowdown in employment. 

Reuters

Annual wages gains, expected to be unchanged at 3.4%, moderated to 3.2% but increases remain at the top of their 10-year range. The monthly addition was 0.14%, below the 0.3% prediction and the 0.4% February increase.

Reuters

The U-3 unemployment rate was stable at 3.8% as expected and the underemployment or U-6 rate, which has a more expansive definition, was also steady at 7.3%. This rate is down from 7.9% 12 months ago. 

Reuters

Average weekly hours were static at 34.5. This statistic can be an early sign of employment pressures as firms will often increase the hours of existing workers before hiring new employees. The labor force participation rate slipped 0.2% to 63.0%. It too is at the top of its post-recession range.

Concerns that February’s poor payroll might be the start of a downturn in job creation had been seconded by ADP’s weak March result of 129,000 which was well below the 170,000 forecast.

In reality, except for the February NFP itself the possibility that the job market had turned was limited for several reasons. First, one month diversions are common in the payroll numbers.  Over the past five years the lowest results are as follows: 2018-September 108,000; 2017-September 18,000; 2016-May 15,000; 2015-March 77,000 and 2014-February 168,000.

In each case the subsequent two months were at or better than trend: 2018, 277,000 in October and 196,000 in November; 2016, 260,000 in October and 220,000 in November; 2015, 300,000 in April and 319,000 in May; 2014, 250,000 in March and 327,000 in April. 

Second the ADP-NFP correlation while accurate for long term trends encounters statistical noise when month to month comparison are made.  In March the NFP plunge was twinned with ADP’s robust 197,000. The March NFP of 196,000 was matched with the ADP’s weak 129,000.

Reuters

Finally the employment indexes from the Institute for Supply Management which are part of their purchasing managers’ surveys were securely over the 50 expansion/contraction division in March.

The index for the manufacturing sector, about 15% of US GDP, was 57.5 last month easily beating February’s 52.3 level and the median prediction for 52.4. Employment in the much larger service sector rose to 55.9 from 55.2 in February.

Reuters

Reuters

While both indexes are below their 2018 highs, 60.5 for services in January and 59.2 for manufacturing in February, those scores are records in themselves. An all-time series high for the 22 year old services employment index and the third highest in 8 years for the 71 year old manufacturing survey.

The US economy cooled substantially at the end of 2018 registering 2.2% annualized in the fourth quarter from 3.4% prior and giving last year a quarterly average of 3%.  The Atlanta Fed GDPNow model has that slower pace continuing in the first quarter at 2.1%. 

Job creation averaged 233,300 in the fourth quarter and with a comparable GDP rate in the now completed first quarter it is not surprising that new employment has maintained a similar pace, lowered only by February’s quirk.