Payroll Report Will Help Gauge U.S. Resilience to Global Drags

  • Jobs growth expected to moderate to 206,000 pace in March
  • Wages may be depressed by calendar quirk similar to February

If you’re thinking the March jobs report may sway the Federal Reserve’s immediate thinking on interest rates, don’t.

Even a blockbuster reading probably wouldn’t move the needle toward an April interest-rate increase after Fed Chair Janet Yellen this week signaled a willingness to let the economy run hotter before acting again. Instead, the report will gauge whether the labor market is succumbing to the drag weighing on the economy itself -- weak global demand.

“There’s always that potential, but we’ve gone through several periods of concern about foreign developments and yet payrolls seem to have come through unscathed,” said Dana Saporta, a U.S. economist at Credit Suisse Securities USA in New York. “It’s not our outlook that foreign developments will weaken the labor market in the near-term, but if that were to happen, the overall strength of the recovery will be at risk.”

Here’s what else economists are looking out for in the Labor Department’s report on Friday at 8:30 a.m. in Washington:

Job Growth

Payrolls are expected to climb by about 200,000 workers in March, according to the median forecast of 84 economists surveyed by Bloomberg. In February, 242,000 jobs were added.

Some moderation is to be expected as it’s “hard to maintain monthly payroll gains of over 200,000 as we get closer to full employment,” Saporta said. A reading near the consensus “would be consistent with a strong, healthy labor market.”

Risk of a weaker payrolls print has been signaled by the Institute for Supply Management’s non-manufacturing index. The group’s employment component posted sharp declines in January and February, showing contraction last month for the first time in two years. Since businesses in the services sector make up the lion’s share of employment, it could be a warning signal for payrolls, said Robert Brusca, the head of Fact & Opinion Economics in New York.

The strong pace of job growth even as the economy slows is also worrisome, he said. The gain in gross domestic product cooled to a 1.4 percent annualized rate in the fourth quarter as businesses cut investment and exports suffered from weak overseas demand and a stronger dollar. The Federal Reserve Bank of Atlanta’s forecasting model for GDP is predicting a 0.6 percent advance in the first quarter as consumers have reined in spending.

“I’m uncomfortable with what the job market has been doing -- it doesn’t make any sense to me,” said Brusca, whose forecast for payrolls growth of 140,000 is among the lowest in the Bloomberg survey. “It’s too strong. The economy just isn’t as strong.”

Wage Gains

As payroll gains have remained solid, the focus has shifted to any signs that a much-needed acceleration in wages is on the way. Any pickup would also lend insight into prospects for inflation, which has been trailing the Fed’s goal for more than three years.

While job creation hasn’t skipped a beat, wages have been choppy lately. Average hourly earnings are projected to have climbed 2.2 percent in the year ended February, matching the prior month’s increase. In January, the year-over-year gain was 2.5 percent.

However, a calendar quirk that may have depressed this measure of wage growth in February was repeated in March. The Bureau of Labor Statistics’ survey period is the week that includes the 12th of the month, and some economists have found that hourly earnings are often softer when the period doesn’t also include the 15th -- a payday for many workers. The latest survey week encompassed March 6 through March 12.

“Given the calendar effects, we really want to look through the ups and downs in average hourly earnings in February and March,” said Ryan Sweet, a senior economist a Moody’s Analytics Inc. in West Chester, Pennsylvania. “When the dust settles and the calendar effects work their way out, we’re going to see a more noticeable acceleration in wages, which is long overdue.”

The Bureau of Labor Statistics has looked into a similar theory before, testing what happens when the 12th of the month falls on a Friday or Saturday, like it did in March. It found no statistically significant influence on wages.

Industry Breakdown

Warm temperatures in March may have boosted payrolls in weather-sensitive industries, Sweet said. The number of heating degree days, a measure of energy demand based on population, was 84 in the week ended March 12, according to data from the National Oceanic and Atmospheric Administration. That’s the fewest during a comparable week since 2012.

“I think weather is playing some role in goosing the job numbers, and we could see that again in March,” Sweet said. “It feels like job gains in construction are a little bit stronger than would otherwise be implied by residential and nonresidential investment in structures.”

Economists at RBS Securities Inc. are expecting manufacturing employment to stabilize alongside the improvement in industry surveys. Factory payrolls fell by 16,000 in February, the most in six months. 

Meanwhile in the other direction, “we expect to see a noticeable deceleration in the retail sector” following out-sized gains at the start of the year, RBS economists Michelle Girard and Kevin Cummins wrote in a note to clients. Retailers added a combined 117,000 workers to payrolls in January and February, the most over a two-month period since 1994.

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