You undoubtedly know by now that the U.S. economy added 164,000 jobs in March. While that was the best number in ages, anyone who looked closely at the payrolls report issued by the U.S. Labor Department would discover that it was actually riddled with problems.
Indeed, the report sends a very clear message: While the March report is consistent with a gradually improving labor market, the numbers hardly convey a sense of an economy that's zooming its way back to health.
When I need insight on workplace stats, I always turn to the great independent labor analysts Philippa Dunne and Doug Henwood, of the New York-based Liscio Report newsletter. Here are their views on the report, along with my added comments:
Nearly a quarter of the 162,000-job gain came from a 41,000-job gain in goods production, which is very unusual. It was nearly a third of the private sector gain of 123,000. That's a good sign of increased manufacturing.
Mining and logging were up 9,000, construction was up 15,000 (a swing of almost 75,000 from its average over the last year), and manufacturing was up 17,000. These are all signs of increased basic activity, which is positive.
Within construction, all the gains were in non-residential and civil; residential fell by 10,000. So that's a plus for commercial real estate and highway construction, but not for the homebuilders.
Private services added 82,000 jobs, with almost half (40,000) being added by temp firms. Wholesale trade added 9,000, and retail added 15,000. Leisure and hospitality was up 22,000 – mainly because of an exuberant gain in bars and restaurants. We can see the hotel and restaurant stocks have been booming lately, and now we know that the companies are actually seeing business improvement, meaning the action we've seen in their shares isn't just speculation.
There were some losses in the service sector, with information services shedding 12,000 jobs and financial services a total of 21,000. This is probably a result of bank consolidations, in which a lot of duplicate mortgage and IT positions get eradicated.
The U.S. healthcare sector added 27,000 jobs – twice February's gain and considerably above the recent average. This supports the recent advance in hospitals shares and the past month's revival in medical stocks of all stripes.
Without the 48,000 temporary U.S. Census workers, the government ranks would have declined; minus the Census, federal employment was flat, and state-and-local employment was off by 9,000 jobs. This is good news, and surprising. When the public sector siphons workers from the private workplace, innovation and productivity decline.
A little over half of March's gain was attributable to temporary workers of one kind or another. This is often seen as a negative, but in this case is not – most new workers in past economic recoveries have started out as temps.
The yearly loss in total employment is now down to 1.8%, and for the private sector, the loss is 2.1%. These are major improvements over the numbers from just six months ago. We need monthly job gains of about 100,000 to keep up with population growth, so we can take comfort in knowing that this month's headline number comfortably beats that benchmark.
Earnings were remarkably weak, which is the biggest problem. In the new all-worker series, hourly pay was off 0.1%, pulled down by a 0.6% decline in manufacturing. Yearly gains in hourly earnings were 1.8% for all workers, and 2.1% for production workers. Both are down a full point in less than a year. The good news is that not only are there no inflationary pressures coming out of the labor market, but these sorts of numbers raise concerns about purchasing power, and even have a hint of deflation about them.
The average workweek rose 0.1 hours for all workers, and 0.2 hours for production workers. While these are nice gains, they only take us back to where we were in January.
The household survey looked stronger than its payroll counterpart in some respects, but the composition of employment doesn't look so great. The employment/population ratio rose 0.1 point, its third consecutive rise, taking it roughly back to where it was last fall.
The U.S. unemployment rate held steady at 9.7% (though it was 0.0008 percentage points away from being rounded up to 9.8%, meaning it would have represented an increase). In a bit of good news, the number of permanent-job losers declined by 234,000 to its lowest level in almost a year. The broad U-6 rate rose 0.1 point to 16.8%. The number of workers who took part-time jobs for economic reasons was up 295,000. This makes you wonder about the quality of jobs people are finding, a concern that is supported by the slippage in average earnings.
The probability of a person who was unemployed in February finding a job in March fell to 18.7% from 20.1%, an all-time low for this series, which goes back to 1948. The separation rate also fell, reaching 2.3%, which is close to an all-time low. This means that while it's good that the job-loss rate is ebbing, people don't have enough confidence in the job market to quit voluntarily.
In summary, Dunne and Henwood observed that the March numbers are consistent with a gradually improving labor market. But it hardly paints a picture of one roaring back to health. The headline gain was at the 42nd percentile of changes since 1950; without the Census workers, it would have been at the 34th. (Higher is better).
The bottom line: It's a bad news/good news scenario. Combined with weakness in hourly earnings, the payrolls report offers comfort to bulls that the economy is getting traction. But it provides no evidence of the sort of strength that would lead the U.S. Federal Reserve to worry about wage inflation. So figure that the Fed will stay with super-low rates all year, which helps the stock market in a huge way.
[Editor's Note: In this day and age, how many columnists could take a monthly payroll report and turn it into a forecast for both interest rates and the U.S. stock market?
But as the preceding analysis demonstrates, Money Morning Contributing Writer Jon D. Markman is quite capable of just such an exercise. And as his track record demonstrates, Markman's predictions have a habit of coming true.
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