March Jobs Report
…..98,000 jobs added in March – missing expectations. Unemployment rate drops to 4.5%.
Financial Review by Sinclair Noe for 04-07-2017
DOW – 6 = 20,656
SPX – 1 = 2355
NAS – 1 = 5877
RUT +0.14 = 1364
10 Y + .03 = 2.37%
OIL + .65 = 52.35
GOLD + 2.20 = 1254.80
The economy added 98,000 net new jobs in March, far fewer than expected. The unemployment rate dropped from 4.7% to 4.5%, and that is the lowest level in 10 years. The January report was revised lower, from 238,000 to 216,000. And the February report was revised lower, from 235,000 to 219,000; or a loss of 38,000 jobs from earlier reports.
A more accurate measure of the pace of hiring, the three-month average, shows the US is adding 178,000 jobs a month so far in 2017. That’s down slightly from 187,000 a month in 2016 and well below the recent high-water mark of 250,000 a month in 2014. In March, the year-over-year change was 2.13 million jobs. Decent job growth. Despite weakness in March, the labor market is fairly healthy, and it would be difficult to maintain a hiring pace above 200,000, at least for any length of time.
There are a couple of explanations for the weak number – and it basically boils down to statistical noise. February was unusually warm and pleasant weather for much of the country, resulting in a surge of hiring, especially for construction jobs. In March, the East Coast was hit by a blizzard during the time when researchers were gathering data. There will be revisions to the March numbers, so it is too early to call a trend.
Economic growth has been steadfastly sluggish, not matching the strong jobs numbers from January and February. So maybe it was just a reversion to the mean. The latest report will only add to the debate over whether so-called soft data, like stronger sentiment among businesses, is actually prompting companies to hire more workers. March’s data suggests it is not. The weak headline number is also a stark reminder that it will be difficult to add significantly more new jobs to the economy at this late stage in the jobs recovery. It is highly unlikely that the US will start adding 300,000 to 400,000 new jobs each month. Not gonna happen.
The change in the jobs numbers really is the best single number to understand the state of the economy. While it has a lot of month-to-month statistical variance, it is a fairly reliable indicator — especially if you average a few months together — of whether the economy is growing, contracting or stagnant. Now, with the jobless rate at 4.5 percent, the binding constraint is the number of available workers; and that is a combination of demographics, skills, and pay. The demographics boil down to birthrates, death rates, retirement rates for the boomer generation, plus immigration. The skills are constantly evolving and employers are constantly bemoaning the lack of skilled workers; yet as much as they complain, there has been a movement away from job training programs which were once the forte of unions. And the wages component – if wage growth were stronger, you would expect it to have the positive effect of pulling people on the bench into the labor force. People who don’t see the value in working for $10 an hour might do so for $15. Wages are rising, but slowly, grudgingly. The Federal Reserve may think we are near full employment but wages do not confirm that stance.
Hourly earnings for the average American worker rose 0.2% to $26.14 an hour. And the increase in hourly pay over the past 12 months slipped to 2.7% from 2.8% in the prior month. Although wages are rising faster now compared with a few years ago, they still aren’t increasing as much as they normally do in periods of economic prosperity. In good times, wages tend to rise 3% to 4% a year.
The retail sector continued to contract, with department stores in the process of closing up to 3,500 stores . About 29,700 retail jobs were cut in March, and the vast majority were from department stores that sell everything from furniture to vegetables. Meanwhile, online retailers, the big competitors to physical stores, gained 2,200 jobs. Retail also lost 30,000 jobs in February, so we are seeing a trend develop.
And hiring in the construction industry almost came to a standstill, just 6,000 new jobs, after a huge gain in February. It was the second warmest February in the US since the 1890s. Meanwhile, March roared in like a lion, and the bad weather was likely a factor in hiring for many sectors, not just construction.
Most of the hiring was concentrated in white-collar professional jobs, with 56,000 jobs. Health care and education added 16,000. Mining, which includes oil production – added 11,000. Also, 11,000 new jobs in manufacturing. Manufacturing accounts for only 9 percent of employment but punches above its weight, because factory jobs pay considerably more than many service positions. In recent months, blue-collar fields like manufacturing and construction have been very solid, a sharp contrast with late last year when service industries like education, business services and health led the way.
Private payrolls increased by 89,000 – which means government added 9,000 jobs. It also means there is a big disconnect between today’s report and Wednesday’s report on private job growth from ADP, which showed 263,000 new private sector jobs.
There are 1.69 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 1.80 million in February. This was the lowest number since 2008. The U6 unemployment rate dipped from 9.2% in February, down to 8.9%, the lowest level in almost 10 years. U6 measures unemployed plus underutilized workers, or workers who are working part-time for economic reasons. Of course, many of those part-time workers would like full-time jobs – so this indicates that there is still slack in the labor market. Part-time work is still a contentious alternative for many workers. There were some 5.6 million involuntary part-time workers in March 2017, little changed from the month before, but down from 6.4 million a year earlier, according to the Bureau of Labor Statistics. That number is up from 4.5 million in November 2007, but off the peak of 8.6 million in September 2012. These figures are almost entirely due to the inability of workers to find full-time jobs, leaving many workers to take or keep lower-paying jobs. And 54% of the growth in these involuntary part-time jobs between 2007 and 2015 were in retail, leisure and hospitality industries, according to the Economic Policy Institute, a nonprofit think-tank in Washington, D.C.
The EPI report found a prolonged “structural shift toward more intensive use of part-time employment.” Aside from the frequent lack of sufficient work hours, these part-time workers must also “navigate unpredictable and/or variable hours,” with their work schedules varying week-to-week at a rate more than double that of full-time workers. What’s more, part-time workers suffer from a lower rate of pay and benefits coverage than full-time workers, such as access to health insurance and paid time off. Compared to similar full-time workers, men working part-time earn 19% less and women working part-time earn 9% less per hour. Involuntary part-time workers tend to earn less than their voluntary part-time counterparts. Approximately 40% of involuntary part-time workers report a total family income of less than $30,000, compared with just 18% of voluntary part-timers and 29% of the population as a whole. Part-time workers who can’t find full-time jobs struggle to earn enough money to get by, even when they have multiple jobs. More than four out of every five involuntary part-time workers say it’s hard to save for retirement and about seven out of every 10 say they earn less money than they and their family need to get by and pay bills.
The persistence of such large numbers of involuntary part-time workers is an indicator of underlying weaknesses in the labor market, and the weak hand of labor in the labor market. Involuntary part-time workers are twice as likely as voluntary part-time workers to be forced to work on weekends and holidays, and to be given unfavorable work schedules and job assignments. More than half of Americans (53%) are burned out and overworked, according to a survey of more than 2,000 workers by Staples Advantage, a division of office supplier Staples. One reason for this exhaustion does not look like it will be changing anytime soon. Some 34% of workers took a vacation last year, down from 42% the year before, according to a separate survey of more than 2,000 American adults released in February 2017 by Skift using Google Consumer Surveys. (Nearly 40% only took 10 days or less.) One theory: Roughly one in four workers don’t get any paid vacation from their employers. Many are low-income workers and are the least able to afford to take an unpaid vacation day. Under the The Fair Labor Standards Act, the US is also one of the few developed countries that does not require employers to provide paid time off.
The Labor Force Participation Rate was unchanged in March at 63.0%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The participation rate for workers age 25 to 54 (considered the prime working years because people are out of school and too young to retire) was unchanged in March at 81.7%.
Overall, the March jobs report was disappointing but hardly a disaster. Remember that over 8 years ago, the economy was hemorrhaging about 800,000 jobs per month. In March we added 98,000, and the unemployment rate has been more than cut in half at 4.5%.