Financial Review

March Jobs Report

…103,000 new jobs in March – missing expectations. 4.1% unemployment rate. Wages inch up. Still slack in labor market. Tariff troubles loom.

Financial Review by Sinclair Noe for 04-06-2018

DOW – 572 = 23,932
SPX – 58 = 2604
NAS – 161 = 6915
RUT – 29 = 1513
10 Y – .06 = 2.78
OIL – 1.59 = 61.59
GOLD + 7.20 = 1334.40


The economy gained just 103,000 new jobs in March, well short of estimates for 185,000. The unemployment rate was unchanged at 4.1% for the sixth straight month. March was the 90th consecutive month of job growth, by far the longest streak on record. The number of new jobs for February was revised up 13,000 to 326,000. The January jobs number was revised lower by 63,000 to 176,000. While the report was disappointing, there can be big swings from month to month. The economy added an average of 202,000 jobs a month in the first quarter. On average, the US has added 188,000 jobs each month in the past year. The month-to-month numbers can jump around because of anything from bad weather to an oddly timed holiday. So If someone asks you to guess the monthly jobs report number, just say 200,000. It’s become a pretty safe bet.


After a super strong February, it is not a big surprise to see a pullback in March – it is also an indicator that the economy is not running too fast – no fears of inflation from today’s numbers; no reason for the Fed to slam on the brakes. Markets tumbled after a report of unexpectedly strong wage growth in January led to fears of inflation, and the interest-rate hikes it could bring. The markets also tumbled today but the reaction to the jobs number was muted.


In a speech in Chicago today, the Fed chairman, Jerome Powell, suggested his view of the economy had changed little in recent weeks. Powell said: “The labor market remains strong, and my colleagues and I on the Federal Open Market Committee expect it to remain strong.” He added that he would be “looking for an additional pickup in wage growth as the labor market strengthens further.” Powell’s prepared remarks made no mention of the looming threat of a trade war with China, but the added uncertainty surrounding trade could tend to make policymakers more cautious.


In a speech that made no mention of rising trade tensions that have sent stocks into a dive, San Francisco Fed President John Williams said he expected growth to stay strong and inflation to finally hit and even exceed the Fed’s 2-percent target. Williams, who is in line to replace William Dudley as the head of the New York Fed, says the Fed needs to keep raising U.S. interest rates gradually to keep the economy, already growing faster than its trend rate, from getting too hot.


In March, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $26.82. Over the year, average hourly earnings have increased by 71 cents, or 2.7 percent. Nothing to get excited about, one way or the other. While that’s faster than the annual 2% gains that were the norm early in the expansion, it still falls short of the 3% to 4% increases that usual prevail when the unemployment rate is as low as it is now. The bigger picture is that wage growth remains weaker than most economists would expect when unemployment is so low. There is a long list of possible explanations for stagnant wages, from globalization to weak productivity growth to demographics. Most still expect employers to have to raise pay eventually to attract and retain workers. But so far, employers are resisting. Fed Chair Powell said today: “The absence of a sharper acceleration in wages suggests that the labor market is not excessively tight.”


Pay has also improved for employees in lower-wage sectors such as retail and hospitality, helped by state increases in the minimum wage. Workers in the middle are the ones who’ve gained the least. The increases are gradual, but nonetheless we are seeing evidence of some upward trend for wage growth. The annual rate of growth in hourly pay in the first three months of 2018 hit a nine-year high of 3.2%. While the weather dampened hiring last month, it did not have an impact on hours worked. The average workweek held at 34.5 hours.


The U-6 unemployment rate is an alternate measure of unemployment, which includes unemployed and under-utilized workers, or people working part-time for economic reasons; U-6 dropped to 8.0% from 8.2%. There are 1.32 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 1.39 million in February. That’s down from a peak of 6.8 million not long after the Great Recession ended. For years after the recession, economists worried that long-term unemployment would leave millions of Americans without up-to-date skills, potentially unable to find work again. The proportion of adults in their prime working years — defined as ages 25 to 54 — who are either working or looking for jobs reached the highest level in nearly seven years in February, before declining slightly last month.


Workers are increasingly capitalizing on employers’ need to hire people by quitting and looking for new jobs. The proportion of unemployed workers who had quit their jobs reached 13 percent last month, the highest since 2001. Quitting without a job lined up is a sign that workers are confident they can find a new one. Roughly half the unemployed were fired or laid off. The rest are people who have re-entered the job market after a break, perhaps to raise children, or those who have started looking for the first time after finishing school.


The rates for men, women, teens, white Americans and black Americans showed little change in March. The labor force participation rate, a measure of the share of people who are working or want to relative to the whole population, also stood still, at 62.9%, a slight decrease.  While there might be plenty of job openings, many potential workers are still on the sidelines.


The pace of hiring was expected to slow in March after a huge gain in February that matched the biggest increase in almost three years. Unseasonably warm weather boosted employment in the late winter, but as a result some industries such as construction trimmed payrolls last month. There were also a series of storms in the Northeast in March. Constructions firms shed 15,000 jobs one month after posting the biggest gain in 11 years. The strongest job gains took place in manufacturing, health care and white-collar businesses. Manufacturers stayed on a roll, adding 22,000 workers. Health-care providers also hired 22,000 people. Professional firms boosted employment by 33,000. Temporary help, seen as a harbinger of future permanent hiring, slipped by 600. Leisure and hospitality employers added only 5,000 jobs last month, the least since September. Government payrolls rose by 1,000 in March.


Retail lost 4,000 jobs last month, but let’s dig a little deeper and we’ll find that traditional retail took big hits, while non-traditional retail saw some gains – Call it the Amazon Effect: truck transportation added 6,700 positions, courier and messenger jobs rose by 5,800, warehousing and storage added 2,500 jobs, and nonstore retail added 4,300 positions. On the flip side, the retail sector continues to hemorrhage positions — department stores slashed 7,900 jobs, warehouse clubs and supercenters cut 4,700 jobs, and clothing stores cut 7,300 jobs.


Trump announced late Thursday that he would consider imposing tariffs on an additional $100 billion worth of Chinese products, escalating the rapid-fire exchange of trade actions by the two countries. Beijing warned it was fully prepared to respond with a “fierce counter strike” of fresh trade measures if Washington followed through with President Donald Trump’s threat to slap tariffs on an additional $100 billion in Chinese goods. It isn’t yet clear what impact the tariffs could have on the economy. But the threat alone could disrupt some companies’ plans. Whether trade tensions and threats come to fruition or not, even if there isn’t follow-through, the lingering uncertainty and the market volatility that it creates will start to permeate business decisions and household decisions. Already, many companies are having to deal with pricing pressures on basic materials as well as supply chain disruptions. When that happens, it can put a damper on hiring plans. The March Jobs numbers are a reminder that while the economy is sound, this is hardly some unprecedented run of economic greatness. If nothing else, the new numbers are a reminder that no one involved in America’s trade diplomacy should negotiate with a belief in the nation’s economic invincibility.


Should people be concerned about the escalating trade tensions between the United States and China? Actual tariffs are not set to take effect for some time. Last night’s talk about $100 billion in additional tariffs is nothing but talk at this point. There is going to be a long gestation period and the impact needs to work its way through. Many businesses are still optimistic because of lower corporate tax rates. And those tax cuts, which were just talk last year, are now a real thing that companies can count on and build into their budgets. A trade war? Not yet. Companies may hesitate to make some new investments because of trade fears but CEO confidence is still very high due to the tax cuts.


Trade war talk dominated markets this week.  Two big events on the trade front could influence markets in the week ahead, including possible progress on NAFTA and a key speech by Chinese President Xi Jinping. Earnings season kicks off at the end of the week with reports from BlackRock and major banks, JPMorgan, Citigroup and Wells Fargo.

For the week, the major averages closed lower in volatile trading. The Dow dropped 0.7 percent and the S&P 500 declined 1.4 percent this week. The Nasdaq composite dropped 2.1 percent.

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