The Bureau of Labor Statistics (BLS) reported that just 126,000 payroll jobs were added in March. With the downward revisions of past two months, job gains have now averaged 197,000 per month this quarter (compared with 324,000 the previous quarter). The unemployment rate remained 5.5%, and yearly wage growth continues to stay within 1.8%-2.2%. The sharp dip in March employment growth is a realignment with the true underlying pace of economic growth in the first quarter. Still, we expect a rebound in April. That said, odds of the first rate hike occurring in June have declined, especially if this weakness persists into spring.
The economic releases this week include:
- The U.S. recorded a trade deficit of $35.4 billion in February, down from the revised January deficit of $42.7 billion (originally $41.8 billion).
- According to the ADP Employment Report, the private-sector nonfarm businesses added 189,000 jobs in March, following an upwardly revised 214,000 gain (was 212,000) in February.
- Personal income increased by 0.4% in February, matching the revised rise in January (was up 0.3%). Personal spending fell by 0.2% in February, following a revised fall of 0.4% (was down 0.5%) in January. Personal income rose 4.5% on a year-over-year basis. The core Personal Consumption Expenditure Price Index, the Fed’s favored measure of inflation, rose 1.4% over the year.
- U.S. factory orders rose 0.2% in February from a revised 0.7% drop (was -0.2%) in January.
- The Conference Board’s Consumer Confidence Index climbed to 101.3 in March from an upwardly revised 98.8 (was 96.4) in February.
- The Institute for Supply Management (ISM) Manufacturing Index declined to 51.5 in March from 52.9 in February.
- The Chicago Business Activity Barometer edged up to 46.3 in March from 45.8 in February.
- Initial jobless claims fell to 268,000 in the week ended March 28 from the previous week’s revised level of 288,000 (was 282,000). Continuing claims fell to 2.325 million in the week ended March 21.
Data out so far for the first quarter show weak industrial production, residential construction, retail sales, and nonresidential investments (for various reasons that include weather, a stronger dollar, a sharp pull-back in the energy sector, and the now-resolved West Coast port dispute). Among all economic data, payroll jobs had been an anomaly as its growth momentum was faster than what the economic growth rate would imply. All of that changed with the BLS’s March employment report.
The BLS reported that only 126,000 jobs were created in March (according to the establishment survey), far below consensus forecast of 250,000 and breaking a 12-month string of 200,000-plus job gains. Prior payrolls were revised down for February (264,000 from 295,000) and January (201,000 from 239,000). That meant a net 69,000 fewer jobs were added in the first quarter of 2015, making the first-quarter average jobs growth per month only 197,000–much slower than the 324,000 in the previous quarter.
Given that employment numbers are lagging indicators of the products activity market, we view the first quarter’s slowdown in payroll jobs growth as a realignment of the labor market with the weak underlying pace of economic growth for the quarter.
Still, this is a sharp slowdown that we had not expected heading into this year. We had instead forecasted a gradual slowdown to a 200,000 jobs gain per month by the middle of the year as the economy approaches its natural rate of unemployment (also referred to as NAIRU). We expect a rebound in April, given the uptick in consumer confidence lately, the 15-year low in initial claims of unemployment insurance, the now open West Coast ports, and dissipating weather-led setbacks.
The weaker-than-expected economic data of late, combined with the lower estimates of the natural rate of unemployment, would naturally push back and down the policy normalization path. That said, the April jobs report has now become even more important. The Fed’s policy action is data-dependent, and if the labor market slowdown is not just a one-month blip and weakness persists, this would mean that the timing of the Fed’s interest rate hike would be later than June–the month pegged as the absolute earliest for the first rate hike.
Employment continued to rise in professional and business services, health care, and retail trade (see chart). One sector that had a sharp pullback is the leisure and hospitality sector. This sector had a huge correction, adding only 13,000 jobs, from a strong February, when it had added 70,000 jobs. In March, jobs were lost in the mining and logging industry (-11,000), government (-3,000), construction (-1,000), and manufacturing (-1,000) sectors. The fall in the oil prices has had a notable impact on the mining industry. The industry has now lost jobs for a third consecutive month. Almost all of the mining jobs lost in March were in the support activities areas. This brings the total loss of jobs to 23,700 in this area in 2015. We expect to see more job losses in this sector in the near future, although the precipitous drop in the rig count seems to be stabilizing now.