INDICATOR: March Employment Report
KEY DATA: Payrolls: +192,000; Private Sector: 192,000; Unemployment Rate: 6.7% (unchanged); Labor Force Participation Rate: 63.2% (up 0.2 percentage point)
IN A NUTSHELL: "We seem to be back to "normal" when it comes to job growth but that normal is just not strong enough to generate solid income gains."
WHAT IT MEANS: After the winter wipe out, is the economy back up and running? Yes, but it looks like the 55 mph speed limit is still in effect. The March employment report was decidedly mixed. On the payroll side, the gain was decent but not spectacular. There were upward revisions to both January and February and I suspect the same will happen with the March data. But we are still looking at about 200,000 new jobs per month. Now that is hardly terrible and if it is the baseline, then we have a pretty good place to start. But if growth is to really accelerate, hiring has to be in the 250,000-range or higher. The March numbers had some good aspects and some worrisome ones. The private sector created all the positions but at least government didn't cause chaos. Jobs were added across the board. Manufacturing, nondurables such as plastics and food in particular, posted a decline, as did financial firms, which are reducing their mortgage activities. Decent increases were seen in employment services, health care, hotels and restaurant, retail, construction, transportation and warehousing. That's a fairly long list but none of the gains were outsized. Despite the addition of jobs, the income numbers were not great. Firms are working their people even longer than they had but hourly wages actually fell a touch. Thus, weekly earnings rose modestly and over the year, they are up only 2.1%. When you adjust for inflation, that is less than 1% rise, which explains why the economy continues to move ahead sluggishly. That slow gain may not change much as the unemployment rate was flat. The labor force jumped, but that number is up and down like an elevator. The labor force participation rate also rose. While that should imply the stable unemployment rate was pretty good, monthly movements in this number are meaningless.
MARKETS AND FED POLICY IMPLICATIONS: This was a decent but not great report. I was hoping for a bigger one and I still think it is coming. It just didn't happen in March. Of course, if I forecast something long enough it will eventually happen so I am sticking with my view that the labor market is tightening and firms will have to start hiring more people. Trying to squeeze more out of the workforce is likely to lead to even lower productivity. But until that happens, wage gains will remain tepid and so will consumer spending and growth. Investors will probably like but not love this report. It is strong enough to indicate the economy is back on track. It is not so robust that the Fed would have to start thinking about actually raising rates. Indeed, this report allows the Fed to continue doing what it has been doing, whatever that is.
Joel L. Naroff is the co-author, with veteran journalist Ron Scherer, of "Big Picture Economics: How to Navigate the New Global Economy". Release date is April 21, 2014.