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What the Jobs Number Won't Do

Economists were expecting a pickup in job growth in March -- but nothing like this. The employment report for the month, released Apr. 2 by the Bureau of Labor Statistics (BLS), astounded Wall Street as the U.S. economy added 308,000 new jobs -- the highest level in nearly four years and head and shoulders above the median estimate of economists surveyed by Informa Global Markets of 128,000. The jobless rate came in 5.7%, vs. 5.6% in February. Job gains in January and February were revised higher, to a combined 205,000 instead of the previously reported 118,000.

For the most part, the report showed broad strength. Construction put in a massive showing, up 71,000. The service-sector jobs gain was the largest since May, 2000, with retail up 47,000 (some apparently from the return of California grocery workers after their recent strike), and trade/transport/utilities overall up 73,000.

The factory sector, however, lagged behind the rest of the economy yet again, as hiring was flat, vs. a median estimate of growth of 8,000 jobs. Net manufacturing jobs remain down 14,000 year-to-date -- and still some 1.7 million below the level when the recession officially ended in November, 2001.

BULLISH PAUSE? Moreover, the so-called factory diffusion index fell to 48.8 in March from 51.8 in February, suggesting that more companies were losing than gaining workers. This may give a bit pause to the bullish shock of the headline payrolls number and keep the issue of outsourcing in the political spotlight.

The slack gain in average hourly earnings in the March report -- up just 0.1% -- results partly from a dip in factory hours, to 40.9 from 41, but otherwise, this doesn't support the impression of stronger labor demand in the month, especially with construction making a sizable contribution to jobs. Aggregate hours worked fell 0.1% overall, and 0.3% for factories. The survey of households reported a jobs decline of 3,000.

The report has some odd aspects. Among the employment-related items in the release, only the headline nonfarm payrolls figure (arguably the most important single number in the report) was better than expected. And the sheer size of the gain in the construction sector makes us think the BLS may have a bit of a problem with some of the data.

STEADY FED. Predictably, stocks shot higher after the release of the report, as traders welcomed any sign that the labor market is picking up steam. Treasury investors, worried that sustained job-market growth could prompt a change in the Fed's accommodative policy stance, hit the ground selling. The yield on the benchmark 10-year note moved up from 3.90% ahead of the report to 4.12% at mid-morning.

But while Federal Reserve policymakers will welcome the outsize gain in jobs in March, they'll no doubt stick to their view that one month does not a trend make. The upward revision for January, from a too-low 97,000 gain to a "just right" 159,000 rise certainly helps the picture.

The average monthly job gain for the first quarter is 171,000, enough to absorb new labor-market entrants, but not enough to help narrow the output gap. The household survey (which we at Informa don't put much stock in) shows no job growth in March and has the jobless rate up.

In short, the headline job rise is welcome, but it won't be enough to alter Fed thinking by itself. From Informa Global Markets staff analysts

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