Bottom line Four brutal nor’easters blitzed the eastern half of the U.S. during March, rudely reversing mild weather in February and temporarily resulting in much weaker-than-expected job creation of only 103,000 last month. As we attempt to smooth out this weather-related noise, however, it appears to us the economy and the labor market remain healthy, with an average job-creation run rate of 200,000 over the past three months. The silver lining in today’s massive miss is that in conjunction with the cacophony of trade and tariff noise out of Washington at present and the resulting investor concern about slowing economic growth, today’s disappointing labor-market report may be sufficient to keep Federal Reserve Chair Jerome Powell on pace for a more dovish three quarter-point interest-rate hikes over the course of 2018, rather than a more hawkish pace of four or more.
Weather or not? Four snowstorms that blanketed the Northeast last month (one occurred during the March employment survey week) kept 159,000 people in nonagricultural jobs from getting to work, according to the Bureau of Labor Statistics (BLS). True, March typically is a bad-weather month, but that’s 16,000 lost jobs more than normal. Importantly, nearly 1.1 million people who normally work full time could only find part-time work because of the weather last month—more than double March’s historical average of 532,000 employees. In sharp contrast, February’s unusually mild weather experienced 51,000 less lost jobs than normal, so some construction and retail jobs were likely pulled forward from March into February.
Much worse-than-expected nonfarm payroll gains At only 103,000 added jobs, March figure was well below the Bloomberg consensus of 185,000 jobs and our own more optimistic estimate of 217,000 here at Federated. February actually was revised higher from 313,000 jobs to 326,000, while January was revised lower from a gain of 239,000 to a final gain of 176,000. Given December’s final gain of 175,000, that’s a 4-month average of a solid 195,000.
Why do we think that March was a weather-impaired aberration? Because the important labor-market leading indicators of the private ADP report and initial weekly unemployment claims point to continued underlying strength. Wednesday’s ADP report for March added a much stronger-than-expected 241,000 private payroll jobs (consensus at only 210,000), while February was revised up by 11,000 jobs to an increase of 246,000. ADP has now averaged 245,000 jobs in each of the past four months, the strongest such stretch in nearly four years. Initial weekly unemployment claims for the survey week that ended March 17 rose to 227,000, impacted by the snowstorms. But claims slipped back down to 218,000 the following week, only 1,000 claims above a 45-year cycle low.
Household survey falls The admittedly volatile household survey actually declined by 37,000 jobs in March due to the storms, breaking a string of four consecutive months of positive readings. We had added 785,000 jobs in February, 409,000 in January, 104,000 in December and 71,000 in November. This leading indicator for nonfarm and private payrolls serves as the basis for the unemployment rate (U-3).
Wages grow but hours worked flat Average hourly earnings on a y/y basis ticked up to a gain of 2.7% in March, but that’s still a tick below January’s 2.8% increase. For the fourth time in the past five months, the average private work week for all employees was unchanged at 34.5 hours worked in March. Each additional 0.1 hour worked theoretically adds 350,000 jobs to the economy.
Manufacturing steady, while construction falls Manufacturing added 22,000 jobs in March, compared with 32,000 in February and 20,000 in January. But due to the inclement weather, construction lost 15,000 jobs in March, versus a weather-boosted 65,000 jobs in a relatively warm February and 28,000 in January.
Retail fell in March 4,000 jobs were lost in March, compared with February’s weather-aided addition of 47,000 jobs and a gain of 12,000 jobs in January.
Unemployment flat, while labor-impairment rate improves The unemployment rate was unchanged for the sixth consecutive month at 4.1% in March, matching a 17-year low. But the labor-impairment rate (U-6)—also known as the “total” rate of unemployment (or the underemployment rate) because it more broadly includes discouraged workers and the underemployed—fell to 8% in March from 8.2% in February. This likely will continue to decline as we take additional slack out of the labor market. Finally, the labor-force participation rate (the share of working-age people in the labor force) slipped a tick in March to 62.9%, down from a 5-month high of 63% in February, due to the aforementioned decline in the household survey.
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