US Watch – Not panicking over March’s US jobs report

by: Maritza Cabezas

  • March’s nonfarm payrolls fell sharply, increasing by only 98K; the unemployment rate dropped to 4.5% from 4.7%, but this was due to a decline in the labour force
  • Wage growth slowed to 0.2% in March, from 0.3% the previous month, reaching a 2.7% yoy rate
  • This report partly reflects bad weather conditions in the Northeast.
  • We are not putting too much weight on this report, given the negative weather effects and payback for the strong labour report in the previous month.
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US nonfarm payrolls added only 98K jobs in March

March’s nonfarm payrolls increased only 98K from a downwardly revised 219K the previous month. The unemployment rate slowed to 4.5% from 4.7%, the lowest level in almost a decade. However, this was due to a decline in the labour force. At the same time, 1K federal government jobs were lost in March compared to a gain of 2K in February.  Labour participation stalled and those working or actively looking for work remained at 63%. The broad U-6 underemployment rate fell to 8.9% from 9.2%, giving further evidence of the labour market tightening. We are not putting much weight on this report, given the negative weather effects and some payback for the strong labour report in the previous month. In a tighter labour market some slowdown in labour growth is acceptable. However, expectations had been boosted after a stronger than expected March ADP report, but setting expectations aside one shouldn’t lose track of the fact that despite this weak report, job creation has clearly been running around an average 182K-a-month during the past year.

Details show a mixed picture

Indeed looking at the details, retail, which is sensitive to weather conditions, lost a large chunk of the jobs (-30K). Meanwhile, construction, also sensitive, appears to have cooled down as well. Construction added only 6K jobs, after adding an average of 47K in the past two months. However, trade and transport also lost 27K jobs. On the positive side, business services created 56K job, while manufacturing slowed down a bit, but remains respectable after a difficult 2016 when jobs were mostly shed.  Monthly wage growth was0.2% in March, after increasing 0.3% the previous month, reaching a 2.7% yoy rate. Wage growth adjusted for inflation remains modest.

Fed should not panic

Fed policymakers are now discussing whether they should stop reinvestments and reduce the size of the Fed’s balance sheet. They have mentioned that  if the economy continues to improve as expected, then a change in the reinvestment policy could be appropriate later this year. There is already the commitment to continue hiking rates this year two more times. We think that this report will not likely alter this view. We expect the Fed to continue hiking rates in June and September.