The US labor market hit a rather large speed bump in March, decelerating to the slowest pace of growth since Dec. 2013, the Labor Department reports. Companies added a sluggish 129,000 jobs last month, far below the 240,000 gain that economists predicted via Econoday.com’s consensus forecast and the revised 264,000 gain for February.
The news provides more evidence for thinking that the acceleration in growth for the US economy has faded. But while the best-case scenario that prevailed until recently now looks like unlikely, the case for moderate growth is still compelling. But before we consider why the outlook for the macro trend remains encouraging, if somewhat impaired, let’s review how today’s payrolls update for the private sector compares with recent history.
Clearly, the monthly comparison is distressing. Measured against the recent peak gain of just over 400,000 for last November, March’s tepid rise of 129,000 for private payrolls marks a sharp deceleration. But monthly numbers can be noisy. Indeed, if we look at the more reliable year-over-year change the trend still looks robust.
Private-sector payrolls increased 2.6% for the year through March. Aside from slightly stronger gains in January and February, the latest annual increase (along with December’s advance) represents a post-recession high for growth. It’s anyone’s guess what the trend will look like in the months ahead, but for now it’s hard to argue that the annual change looks worrisome. Indeed, the latest downtick could very well turn out to be nothing more than the usual round of fluctuation that accompanies economic releases. Yes, it looks much darker from the monthly change, but this measure isn’t all that reliable for monitoring business cycle risk.
The message when looking at the annual pace: it’s premature to assume the worst based on the latest monthly change. Yesterday’s bullish update on jobless claims offers additional support for keeping an open mind on the outlook for payrolls and the business cycle. Note, too, that Challenger’s latest estimate on layoffs advises that “the pace of downsizing slowed significantly in March.”
If there’s a clear victim in the wake of today’s release, it’s the assumption that the US economy has transitioned to a substantially higher and persistent pace of growth. “There’s no question that the economy is showing the negative effects of the stronger dollar and the collapse in oil prices,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, tells Reuters. “Corporate profits have come under pressure, and hiring has been adjusted in response.”
Does that mean that the Fed’s plans for raising interest rates are on hold… again? Maybe, although we’ll have to wait for April’s jobs report for deeper perspective.
Otherwise, managing expectations down a bit has a certain logic at the moment. But considering a broad spectrum of economic data still leaves plenty of room for projecting a decent if unspectacular rate of growth for the US in the near term. That’s disappointing relative to what the crowd was expecting, but for the moment it’s best not to let one data point–and one that could be revised higher–dominate the macro narrative.
That said, next week’s updates on payrolls deserve close attention for deciding if today’s disappointing news is more than noise. In particular, Monday’s releases of the Fed’s Labor Market Conditions Index and the Conference Board’s Employment Trends Index are required reading. We’ll also see fresh numbers on the state of the US services sectors via the ISM Non-Manufacturing Index on Monday—pay particular attention to the payrolls component. On Tuesday, the Labor Department updates its JOLTS data, aka the Job Openings and Labor Turnover Survey.
Meantime, it now looks like the first quarter for the US economy overall suffered a setback. Indeed, the Atlanta Fed’s revised GDPNow estimate for growth in Q1 slumped to zero as of Apr. 2. It’s still debatable if this is a temporary setback or a prelude to deeper troubles in Q2. Perhaps next week’s data will fill in the missing blanks.