Plenty of Beauty in U.S. Jobs Data Beneath Ugly Main Number

  • Underemployment rate among key figures showing labor strength
  • Fed policy makers are likely to look past weak payrolls

BlackRock's Rieder and El-Erian Dissect the Jobs Report

For the March U.S. employment report, with its ugly headline payrolls number, it’s what’s inside that counts.

While the gain of 98,000 jobs in a survey of businesses and government agencies was the weakest since May and below all analysts’ forecasts, many accompanying details showed a solid labor market. The jobless rate, derived from a separate survey of households, fell to the lowest in almost a decade even as workforce participation was unchanged, while a measure of underemployment reached a fresh post-recession low, boding well for further wage increases.

“Aside from the payroll data, all the other underlying details are encouraging,” said Tom Simons, an economist at Jefferies LLC in New York. “People are re-entering the labor force and it looks like they’re getting jobs right away. The participation rate being steady is encouraging there.”

The March data from the Labor Department on Friday also were challenged by weather anomalies -- a storm in the Northeast during the survey week and more seasonable temperatures after two warmer months -- that had economists bracing for at least some slowdown in payrolls from a strong start to the year. Weather effects probably explain about 70,000 of the difference in payroll gains between February and March, according to Goldman Sachs economists.

The reassuring figures elsewhere in the report keep the Federal Reserve on track to continue plans for two more interest-rate increases this year as the labor market continues to tighten.

“The Fed is going to look past the March weakness -- they’re going to continue to paint a positive picture of the labor market,” said Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The trend in job growth remains solid and the overall economy is still doing well.”

Markets appeared to be relatively unfazed by the payroll number. The S&P 500 Index of stocks was up 0.2 percent as of 1:50 p.m. in New York.

Construction, Retail

Even so, there wasn’t much to sing about in the March payroll figures. The employment increase included a paltry 6,000 gain in construction jobs and 11,000 in manufacturing after both sectors showed big gains in January and February. Among services jobs, retailers were hit hard last month. That industry showed the weakest two months for hiring since the end of 2009, battered at least in part by the broader trend of Americans flocking to online merchants rather than brick-and-mortar stores.

But for a labor market that’s already challenged by a dwindling supply of unemployed workers, the report may be flashing more warning signs of overheating than of cooling. The jobless rate fell for what economists often deem “the right reasons” -- meaning that more people were employed and fewer were unemployed -- not as a result of Americans fleeing the labor force in discouragement, or retirement.

Mohamed El-Erian, chief economic adviser at Allianz, discusses the March jobs report.

(Source: Bloomberg)

While President Donald Trump has condemned the headline unemployment rate as a “phony” measure on the campaign trail and “ridiculous” earlier this week, the gauges that his administration has favored also strengthened in March.

Treasury Secretary Steven Mnuchin has cited the so-called U-5 rate, which includes discouraged workers as well as a group called marginally attached workers, who aren’t working or actively looking for work but want a job. That rate declined in March to 5.4 percent, the lowest since May 2007. The number of discouraged workers, not looking for work because they believe none is available, fell to 460,000 for the second-lowest since August 2008.

The U-6 rate, which in addition to the U-5’s components includes those working part-time for economic reasons -- meaning they would prefer a full-time job -- also was a bright spot. The measure fell to 8.9 percent, the lowest since December 2007.

“The president and I have spent a lot of time talking about the U-6 number,” Gary Cohn, director of the White House’s National Economic Council, said on Bloomberg Television after the report. “We’re happy to see that number below 9 percent.”

National Economic Council Director Gary Cohn discusses the U.S. jobs report.

(Source: Bloomberg)

The figures didn’t impress everyone. Barclays Plc economist Rob Martin called it “a weak report with no silver linings” and labeled the decline in the unemployment rate a “catch-up” with data from the payrolls survey. The data point to the further divergence between “soft” sentiment surveys that are strengthening and the “hard” figures that have been slow to catch up, he said.

“We look for labor markets to accelerate in the near term, but should that hope fail, we would expect activity to slow as well,” Martin wrote in a note, saying that monthly payroll gains in the 200,000 range “are consistent with continued economic expansion.”

The two-month revisions to payrolls subtracted 38,000 jobs, leaving the average so far in 2017 at 178,000. That’s in line with the 187,000 monthly average for all of last year.

Whether the tight job market triggers the long-awaited wage gains in this almost-eight-year-old economic expansion remains a puzzle. Average hourly earnings increased 2.7 percent in March from a year earlier, just a touch above the average since the start of 2016. That, more than weaker-than-expected employment, might merit more attention in the months ahead.

While wage growth is modest, “there’s no reason to panic” about the hiring figures, Sweet of Moody’s Analytics said. “All in all, it’s right around what we need” to keep up with population growth and to keep the unemployment rate steady.

— With assistance by Sho Chandra

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