Payroll employment slowed to a tepid gain of 103,000 in March after being revised down on net for February and January. Nearly all of the shortfall may be attributed to unusually harsh weather, most notably along the Eastern seaboard. Construction and retail employment declined as leisure and hospitality hiring slowed to a trickle. It is important to note that the data is seasonally adjusted so job losses appear even larger in areas such as construction when the weather is unusually bad. Projects slated to begin in March were delayed.
Roughly 700,000 full-time workers saw their hours reduced to part-time due to the unusually bad weather closing establishments temporarily. The East coast was hit particularly hard by snow. That also shaved a bit of time from the average workweek.
Average payroll employment came in at a 202,000 monthly pace for the first three months of 2018. That is up slightly from the pace of 2017 and more than enough to ensure further tightening in labor markets in the months to come. Look for more people to be pulled from the sidelines and the unemployment rate to fall in the second quarter.
Average hourly earnings rose 0.3% between February and March and 2.7% from one year ago. That marks a slight pickup for the year-over-year pace in February. The loss in high-wage construction jobs, however, likely suppressed that number. Anecdotal reports of wage pressure are compounding across industries. CEOs report increased signing bonuses, higher wages and poaching of their best workers. This is a trifecta for the labor market more broadly. One CEO in the service sector, which should be at the front edge of a tightening labor market, told me he hasn't seen anything like this since the boom of the 1990s. Many employers have forgotten what a truly tight labor market feels like. This should show up in broader wage gains in the months to come.
The Federal Reserve is expected to take a break from rate hikes at the next meeting in May but nothing in today’s report will stop another move up in June. The fly in the ointment is trade. There is considerable uncertainty around whether the U.S. and China will actually enter a full-blown trade war. Optimism over NAFTA negotiations has improved in recent weeks but the uncertainty surrounding the possibility of making upgrades, instead of abandoning the agreement, remains high.
Weather was the main story in the March employment report, a factor the Federal Open Market Committee (FOMC) will discount as it deliberates on the strength of the economy. Members will have to wait for the distortions to play out before moving to raise rates again. We expect the Fed under the new chairman, Jay Powell, to raise rates again in June. A trade war would dramatically complicate the Fed’s job because tariffs raise inflation and slow growth.
Copyright © 2018 Diane Swonk – All rights reserved. The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.