Don’t Be Fooled. The March Jobs Report Was Better Than It Looked

The dollar and the headline number of non-farm jobs added—a mere 98,000—was shockingly low, but that owed much to weather-related issues that say nothing about the underlying trend. Once you look through that, you see an economy that is still ticking along, but struggling to step up a gear despite the best efforts of the new administration to chivvy it along.

The 98,000 gain in jobs was barely half the 180,000 Wall Street analysts had forecast, which is why the stock market and the dollar fell in response. But both quickly turned round as investors got to the underlying data: The average monthly gain in employment over the last three months is still 178,000, which is a decent achievement given that unemployment is already back at its lowest level in nearly 10 years.

In January and February, unseasonably warm weather had led to more people finding construction jobs than usual, gains that were effectively moved up from the spring months. To make matters worse, the BLS survey was actually carried out in the week that a major snowstorm hit the northeast, which obviously depressed hiring in that week. The snowstorm also had an impact on the average number of hours worked, which was the only other disappointing element of the report.

The figures that better reflect the trend look more impressive: The number of jobless fell by 326,000 to 7.202 million, taking the unemployment rate down to to 4.5% of the working population. For both numbers, that’s their lowest since late 2007. Just as importantly, the BLS’s “U6” rate that includes under-employed people also fell – to 8.9% of the population from 9.2%. Although the overall labor force participation rate was steady, the number of “discouraged workers” – i.e., those who don’t believe there are jobs out there for them – is down by over 20% in the last year. That’s all clearly good news.

All in all, said, ADM ISI analyst Marc Ostwald, “April payrolls should rebound smartly.”

So, by most measures, the labor market continues to “tighten.” But you wouldn’t guess it from looking at the earnings component of the report. Average hourly earnings rose only 0.2% on the month, as expected, and unchanged from February, and were up 2.7% on the year. Right now, that isn’t even keeping up with inflation, which hit 2.8% last month (mainly because March 2016 was the month that oil and gas prices bottomed out).

Manufacturing jobs, which tend to be higher-paying than service-sector ones, rose 11,000, but retail jobs fell by nearly 30,000, testimony to the problems of stores across the country that are being laid waste by e-commerce. The other sector to stand out is financial services, where employment hit a new all-time high of 8.409 million (they passed their pre-crisis high in February). That, combined with another 46,000 rise in professional and business services (also a generally higher-paying sector), suggests that average wages should actually have risen a bit more than they did. The fact that they couldn’t pull the average higher suggests that earnings at the bottom of the scale are weaker than they should be. In other words, it looks like inequality could be getting wider.

“As always, more important than the number of jobs added is the quality of them and the resultant wage growth,” said Megan Greene, chief economist with Manuflife Asset Management. “On that front, this report—like most of them over the past few years—was decidedly meh.”

Greene reckons that the figures shorten the odds of the Federal Reserve only raising interest two more times this year. That ought to keep the housing market steady and, at least, limit the damage to the auto sector, where sales have slowed recently as lease plans start to get more expensive.

ADM ISI’s Archer also argues that the earnings figures are nothing to scare the Fed, but cautioned that it wasn’t really likely to do anything before its Federal Open Market Committee meeting in June anyway – by which time this report will be ancient history.