Financial Review

Jobs Day

215,000 new jobs in March, the unemployment rate at 5%; a solid, steady jobs report.

Financial Review by Sinclair Noe for 04-01-2016

 

DOW + 107 = 17,792
SPX + 13 = 2072
NAS + 44 = 4914
10 Y + .01 = 1.79%
OIL – 1.71 = 36.63
GOLD – 10.30 = 1222.90
Happy Jobs Day. The first Friday of each month brings the jobs report from the Bureau of Labor Stats at the Labor Department. We will dig into this report in detail.

 

The US created 215,000 new jobs in March. The unemployment rate rose a notch to 5% from 4.9%. On the surface, this sounds like an April Fool’s prank. How can we add 215,000 jobs but the unemployment rate increases? The answer is that more people joined the labor pool. You have to be working or looking for work to be counted, and not everyone looking for work found that job but a lot of people are getting off the sidelines. So, the higher unemployment rate is actually a positive. More on that in a moment.

 

Retailers added 48,000 more employees in March, construction added 37,000 jobs, health care providers hired 37,000 people, professional and business services added 33,000, and restaurants boosted staff by 25,000, financial activities added 15,000 jobs. Employment in professional and business services changed little for the third month in a row. In 2015, the industry added an average of 52,000 jobs per month.

 

Manufacturing firms lost 29,000 jobs. The mining sector, which includes oil exploration and drilling and support services for the oil patch lost 10,000 jobs.

 

January’s jobs report was revised down by 4,000 to 168,000. February’s report was revised up by 3,000 to 245,000. In the past 12 months the economy has added 2.8 million jobs. Total employment is now 5.3 million above the previous peak and up 14 million from the economic recession low. The economy has added private sector jobs for 73 straight months. During this span, 14.4 million private sector jobs have been created.

 

Since the beginning of 2015, the economy has added well over 200,000 jobs a month on average. The labor force has now increased by more than two million in the past five months alone. The labor force itself grew by more than the number of job seekers, suggesting that many of those re-entrants were going directly to work rather than spending a long time looking for a job. People aren’t re-entering the labor force and going on unemployment – they are getting jobs. The participation rate has jumped from a low of 62.4% last September to a two-year high of 63.0% this March. So, this is the reason why the unemployment rate moved up to 5%, because more people are looking for jobs – and that’s a good thing. It also means that some of the slack is starting to come out of the labor market.

 

Since September, the labor force participation rate for prime-age workers has increased by 0.8 percentage points. This seems to support the view that the people who left the labor market during the downturn will come back if they see jobs available. However, even with this recent rise, the employment-to-population ratio for prime-age workers is still down by more than two full percentage points from its pre-recession peak. Another positive item in the household survey was a large jump in the percentage of unemployment due to voluntary quits. This sign of confidence in the labor market rose to 10.5 percent, the highest level in the recovery to date, although it’s still more than a percentage point below the pre-recession peaks and almost five percentage points below the peak reached in 2000.

 

The uptick in the participation rate also has the effect of moderating wage pressures by expanding the labor supply. Worker pay rebounded after a small decline in the prior month. Wages rose 0.3% in March, or 7 cents per  hour to $25.43 an hour, which represents a big monthly move; if the economy could sustain this rate of wage increases it would equate to a 3.4% annualized increase in wages. Over the past 12 months, hourly pay increased at a 2.3% clip. Wage gains have picked up, but they are still increasing at a much slower rate than is typical so far into a recovery. The number of hours worked each week was unchanged at 34.4 hours, a few ticks below the post-recession high.

 

The number of persons employed part time for economic reasons (also referred to as involuntary part-time workers) was about unchanged in March at 6.1 million and has shown little movement since November. These individuals, who would have preferred full-time employment, were working part-time because their hours had been cut back or because they were unable to find a full-time job.

 

The number of people involuntarily working part-time rose by 135,000, reversing several months of declines. However, involuntary part-time work is still down by 550,000 from year-ago levels. The number of people voluntarily working part-time fell in March, but it is still 654,000 above its year-ago level. And one small wrinkle, a surprising decline of more than 55,000 temp workers in January and February combined, and just 4,000 temp workers added in March. This might mean that temps are finding full-time work, but usually temp positions are a leading indicator, an early sign that employers are anticipating making long-term hires.

 

One of the desired outcomes from the ACA was that it would free people from dependence on their employer for health care insurance, allowing them to work part-time or start a business if they so choose and get insurance through the exchanges. There has been a substantial rise in self-employment since the exchanges began operating in 2014. In the first quarter of 2016, incorporated self-employment was up by more than 400,000 (7.8 percent) from the same quarter of 2013. Unincorporated self-employment was also up by almost 360,000 (3.9 percent).

 

A separate measure of unemployment that also includes under-utilized workers, known as the U6, increased to 9.8%. And there are still 2.2 million long-term unemployed, people out of work for a half year or more but still looking.

 

So, while there is still slack in the labor market, there is steady, constant and real improvement. Americans are now more positive about the job opportunities available to them than they have been since the economic meltdown. In a new Pew Research Center survey 44% say there are plenty of jobs available in their community, while slightly more (51%) say jobs are difficult to find. That’s much more optimistic than March 2010 ratings, when evaluations of job availability bottomed out, with 85% saying jobs in their community were difficult to find. Back then, just 10% said there were plenty of jobs available. As recently as last January, the share who said jobs were hard to find outweighed the share who said there were plenty available by a 57%-36% margin. The only time in the past 15 years when ratings of the job situation were more positive than they are now was in June 2001, when the unemployment rate stood at 4.5%. Across demographic groups, those with higher levels of education and household income express some of the most positive assessments of the job market.

 

There are still concerns. Wage growth has been weak but it is now running ahead of inflation, just barely. As a result we are seeing job growth and low unemployment without the wage push inflation. In other words a strong enough job market to pull people off the sidelines, without inflationary wage pressures; and the jobless rate is holding steady. Today’s headline number of 215,000 came in just a smidge better than estimates. By the way, “smidge” is a technical economic term meaning boring. And that’s good; it isn’t a rocket blasting into the skies and it isn’t falling off a cliff; it doesn’t shake anybody’s projections or rattle anyone’s assumptions. For financial markets that crave confidence and complain about uncertainty, boring is delightful.

 

And then you can add just a few minor negatives to an otherwise solid and boring report: the work week was unchanged, manufacturing lost 29,000 jobs, the revisions to January and February were down 1,000. In other words, just a smidge of negatives, which the trading machines like to plug into the equation, meaning there is absolutely no reason for the Fed to be worried about an overheated job market; no reason to alter their dovish stance; no reason to hike rates. Perfectly boring.

 

Borrowers and savers, then, will have to wait for the labor market to further tighten, and inflation to show some spine, before borrowing costs change. The Federal Reserve doesn’t expect its preferred inflation metric to hit 2% until 2018 and nothing in today’s jobs report changes that, while long-term economic growth will run in the 2% range.

 

That means the Federal Reserve should feel confident sticking with a slow and gradual approach to rate increases; they should be in no hurry, but can claim they are data dependent.

 

Also worth noting, California and New York are moving to become the first states to lift the minimum wage to $15 an hour. Lawmakers in California passed a $15 pay floor for large businesses by 2022 and all firms a year later. New York officials on Thursday struck a deal to bring the $15-an-hour minimum to New York City by 2019 and the rest of the state in subsequent years. Of course there has been a great debate about the impact of increasing the minimum wage; some say it increases economic activity by putting more money in the pockets of low income people who will quickly spend it, while others say it will result in job losses by imposing higher costs on businesses. Well, we’re about to find out.

 

Also today: The Institute for Supply Management said its manufacturing index rose to 51.8% last month from 49.5% in February. Readings above 50% indicate more companies are expanding instead of shrinking. Economic activity at U.S. manufacturing companies expanded for the first time in six months in March. We’ll talk with Brad Holcomb from the ISM in just a few minutes.

 

 

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