Jobs: March Goes Out Like a Lion
The U.S. government's employment report for March, scheduled for release Apr. 7, should extend the string of solid post-hurricane reports. We at Action Economics expect another solid gain in the headline nonfarm payrolls figure in March, with the usual risk of upward payroll revisions to prior months, and strength in other major labor market aggregates.
We expect payrolls to rise 210,000 on the month, which would modestly outpace economists' median estimate of 190,000. The payroll figures are still playing catch-up following job losses in the aftermath of last year's hurricanes.
Available employment data for March have given little reason to expect a break in the solid trend. While initial jobless claims have tracked modestly higher in recent weeks, following the cyclical lows hit in January, the levels of claims remain remarkably lean. Initial claims averaged 310,000 in March, compared to 290,000, in February, and the notably low 284,000 average for January. This compares to the 332,000 average in 2005, and the 310,0000 to 318,000 lows seen in the four tightest months of last year.
Hefty payroll gains in the first quarter will leave an average monthly increase for the quarter that is close to the 210,000 cyclical peak rate of increase in the fourth quarter of 2004, in keeping with the significant improvement underway in the claims data. Continuing claims have also followed suit, with a level of 2,483,000 for the most recent week ended Mar. 18, and a likely March average that will mark a new cyclical low.
The factory-sentiment surveys suggest less upside risk on the month for this sector, and hint that the post-hurricane improvement in manufacturing employment may be dissipating. The employees' index component of the March Philadelphia Fed survey came in at 5.4 from 11.3, while the workweek index slipped to 6.3 from 8.7.
This was supported by the employment component of the Institute for Supply Management's manufacturing survey for March, which moderated to 52.5 from 55.0. This still remains a solid level on a historical basis, however, and implies a modest factory payroll gain. The employment component in the ISM's non-manufacturing report moderated to a still-solid 54.6 in March from 58.2 in February. While this series has revealed big swings in recent months, it has oscillated around lofty levels that imply a solid figure for March payrolls.
The current conditions series from the University of Michigan's consumer-sentiment index, and the Conference Board's consumer-confidence report, have historically matched up well with general swings in the labor market. Both surveys showed strong figures in March. The current series of Michigan Consumer Sentiment rose to 109.1 in the March survey, from February's 105.6.
The March Conference Board "jobs plentiful" sub-component improved to 28.4 from 27.4, marking the highest level since August, 2001. The present-situations component improved to 133.3 from 130.3, which represents the fifth consecutive monthly gain and a robust figure on a historical basis. The Hudson employment index for March, released Apr. 5, declined 2 points to a still solid 106.2 level. Though this series is only loosely correlated with payroll swings, it also implies a healthy March payroll figure.
The modest downward revision to January payrolls was a break in the pattern over the last year of generally upward revisions, which left the level of payrolls very close to our forecast. The clear pattern over the last year has been for the initial payroll print to be revised higher. Three out of the last five months have revealed huge upward revisions.
There has been a fairly predictable pattern over the last two years of oscillating payroll swings around median forecasts, as swings each month tend to correct for prior surprises. December and January both surprised to the downside. This, along with the lingering catch-up from hurricane disruptions, suggested upside risk relative to the median. Given the upside correction in February, March should be closer to the trend.
History may play a part as well. Over the last couple of years, March has been one of the stronger months for payroll growth -- averaging a gain near 250,000. Given the strength so far on the year, the risk is for another strong gain in March. In total, there's good reason to expect another solid employment report for the month. This should correspond to ongoing strength in other March data, and will set a firm trajectory as we head into the second quarter.