Headline nonfarm payrolls rose by 98,000 in March, versus an anticipated 180,000. Meanwhile, February’s data point was revised downward to 219,000. The unemployment rate was much lower at 4.5%, while the participation rate was flat at 63.0%. There was a small rise of 23,000 in the group classified as “not in the labour-force,” following a decrease of 176,000 in February. The U6 unemployment rate—an expanded measure of unemployment that takes into account marginally attached and part-time workers—was lower at 8.9% in March. The household survey showed an increase of 472,000 jobs in the month, following an increase of 447,000 in February. Meanwhile, the adjusted household survey (the BLS’s attempt to make it more comparable to the payroll survey) pointed to an increase of 536,000 after a rise of 493,000 in February.
Private nonfarm average hourly earnings were 0.2% higher in March (0.2% for production and nonsupervisory workers) and follows 0.3% in February. Annually, they are now 2.7% higher (but only 2.3% for production and nonsupervisory workers); this indicates some upward pressure, but it is not intensifying. Private average weekly hours for production and nonsupervisory workers were 0.3% lower after being unchanged for six consecutive months; they are now also 0.3% lower than a year ago. The 98,000 change in March’s payrolls was largely due to professional and business services (56,000), education and health service (16,000), manufacturing (11,000), and finance (9,000). There was a decline in the retailing sector (30,000). Meanwhile, the mean duration of unemployment was higher at 25.3 weeks.
The pace of payroll growth in March was well below the six-month average of 163,000 and very likely distorted by the unseasonally cold weather and storms in the Northeast in early March. Meanwhile, with the unemployment rate at 4.5%—which is now below the Fed’s (frequently revised) 4.8% estimated level of NAIRU—the economy is at, or very close to, full employment, even taking into consideration that some of this was due to a small increase in labour force dropouts. As a result, some of today’s weakness might also relate to a natural slowing in growth as it becomes harder to find qualified labour. This, in turn, should start to put further upward pressure on wages and inflation (assuming, of course, the Phillips Curve is not as flat as a pancake). This should also be accompanied by some productivity improvements. The jump in consumer confidence since the Trump election is particularly positive, and is tentatively being associated with the increase we are seeing in the labour force, whereby better job prospects are encouraging workers to start looking for work once again. As William Dudley, president of the New York Fed, noted last week, this is also evident in the fact that the unemployment rate has remained relatively stable in the face of what have been quite decent increases in employment. The participation rate has now risen from a low of 62.4% (September 2015) to 63% today. If this pool of labour is indeed deeper than previously thought, it gives the Fed a little more leeway with regard to the timing of rate increases. The Fed probably will not be overly concerned by today’s weather-related weakness, and it also still has the April and May reports to see before the next expected rate increase in June.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.