Why the Weak March Employment Report?

The Mortgage Corner

The good news is the unemployment rate fell to 4.5 percent, and number of unemployed persons (i.e., available for work) declined by 326,000 to 7.2 million. Both measures were improved numbers over the year. But just 98,000 payroll jobs were created in March from the Establishment survey that tracks actual payrolls, lower than gains of 219,000 in February and 216,000 in January, reported the Bureau of Labor Statistics on Friday.

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Graph: Marketwatch

The smaller telephone Household survey that measures the actual unemployment rate and included the self-employed found 472,000 more with jobs and 145,000 added to the workforce, which is why the unemployment rate dropped 0.2 percent to 4.5 percent.

The predictions were for much stronger payroll creation in March, as the ADP (a payroll service) private payrolls estimate on Wednesday was 263,000 payroll jobs, and the Labor Department’s estimates usually follow closely. It’s probably because the surveys were taken at different times of the month and the east coast had some serious weather, as I said.

The consensus before ADP’s result was calling for a 170,000 rise in March private payrolls which would follow gains of 227,000 and 221,000 in the two prior months. Details in the ADP report include a strong 49,000 gain for construction and a 30,000 increase for manufacturing.

This was predicted by a very strong ISM manufacturing index of manufacturing activity earlier in the week, with its employment index at 58.9—which means 58.9 percent of respondents to the survey increased hiring for a 4.7 point gain, the best rate since June 2011. Yet there might be a sign of a weather effect in deliveries as delivery times did slow by a moderate 1.1 points to 55.9, says Econoday.

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Graph: Econoday

So, it could be the weather as the Northeast experienced a Category 3 blizzard in March after two very warm months. In any event this is the lowest unemployment rate since the height of the last expansion in April 2007 though there is still very little wage growth. Average hourly earnings rose only 0.2 percent in the month for a year-on-year rate that is down 1 tenth in the month and further away from the 3 percent line, which historically has meant full employment.

Why the fewer payroll jobs, is a good question. Many businesses are probably waiting to see if the Trump tax and infrastructure campaign promises will become realty. The Labor Department said retail trade is down 30,000 in March following February’s 31,000 decline. Trade & transportation payrolls decreased 27,000 following a 16,000 decline. But both manufacturing and mining show gains, at 11,000 each with construction, despite the weather, still rising 6,000.

And number of long-term unemployed has dropped 526,000 over the past year, while the number of part-time workers who want a full-time jobs is down 567,000 in a year. Also the government hiring freeze put in place in late January didn’t hurt March payrolls as government payrolls rose 9,000.

But the huge drop in retail jobs could mean online buying is cutting into storefront businesses. Macy’s is closing many of its stores and Sears and Roebuck could soon declare bankruptcy or breakup with its $1billion annual negative cashflow.

So was March an aberration? Long term rates are falling at the moment, with the 10-year Treasury yield back to 2.30 percent, while the Fed just raised their short term, overnight fed funds rate to 0.75 to 1.0 percent. Hence there is now a smaller difference between short and long term rates that I’ve mentioned before. This will squeeze bank profits and so the availability of credit at a time when we still have an economy growing just enough at 2 percent.

That’s not enough growth to put the 5.6 million back to full-time work who keep searching.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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