March Rebound in Jobs: Underlying Trend Slowing

Nonfarm payrolls jumped 196,000 in March after rising only 33,000 in February. The three-month moving average fell to 180,000, down more than 20% from a year ago when monthly employment gains were accelerating.

Gains in March were driven by large increases in higher quality jobs in professional services and health care. We also saw strong gains in leisure and hospitality as consumers attempted to escape cold winter weather across much of the country. Government hires picked up at the state and local levels. Education hires were the strongest. That had been a weak point earlier in the cycle.

Construction rose only 16,000 after increasing 25,000 the month prior. This was a weaker-than-expected rebound from the polar vortex, which took a toll on construction in February. Part of the problem was the seasonal adjustment of the data. This is the time of year when construction projects typically pick up. In fact, construction jobs surged by more than 100,000 during the month, before seasonal adjustment. Another problem is commercial construction activity, which has weakened fairly dramatically in recent months. Lodging and office construction has slowed, while much of retail has contracted.

Manufacturing employment dropped during the month despite an improvement in the employment component for manufacturing activity. The high profile closing of GM’s Lordstown, Ohio plant and the collateral damage that had on suppliers was the primary reason.

Retail posted declines for the second consecutive month. Weak spending this winter, a late Easter, additional store closures and the ongoing push to shore up online over in-store services accounted for those losses. Increases in transportation and warehousing jobs were not enough to make up for those losses. Many warehouses are now experimenting with robots instead of people to fill online orders.

Average hourly earnings slowed to a 3.2% pace on a year-over-year basis, after hitting an expansion high of 3.4% in February. The rise in wages remained concentrated in low paying, nonsupervisory jobs. The composition of job gains continued to improve, with employers filling more middle- and high-income jobs in professional services and health care. Those trends are welcome news after the poor composition of job gains and wage stagnation we saw earlier in the cycle. The hope going forward is that wage gains become more broad-based, across income strata.

Average weekly hours rebounded in March to the January level. That will help buoy income gains during along with the rebound in employment. The only fly in the ointment is higher prices at the gas pump. Low wage workers are the most affected by changes in gasoline prices.

Separately, the household survey showed that the unemployment rate held constant at 3.8%. Participation in the labor force was unchanged at 63%. That is up from the lows of 2015 but still weak compared to history. Some of the erosion in participation can be attributed to a pickup in retirements. Another is the loss of prime-age (25-54) male workers in the labor force. We are missing nearly half a million of those workers and lagging other countries in participation. High incarceration rates, drug use and an erosion of skills have all been blamed. The only sliver of hope is that at least some of those workers appear to be using their time out of the workforce more productively than they did in the past. White prime-age workers with less than a high-school diploma now cite caring for families and going to school instead of retirements and disability as primary reasons for being out of the workforce.

Bottom Line
Employment growth is slowing but not collapsing. Moreover, any gains at these low levels of unemployment mean more for individual workers than they did in the past. There are more opportunities to bring back even the most marginalized of workers, while the upward pressure on wages, at least in entry-level jobs, should persist. We are not near entering a recession yet.

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