The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
Today's employment report for March came in quite strong but with wages moderating slightly. Nonfarm payroll employment rose by 180,000 in March, following a revised 113,000 gain in February and a 162,000 increase in January. The March rise in payrolls was well above the market forecast for a 135,000 increase in payroll jobs. February's number was revised up 16,000 from the initial 97,000 increase and January was revised up 16,000 also from the previous estimate of a 146,000 boost. For February and January combined, the net revision was up 32,000.
Nonfarm payroll employment is up 1.4 percent year-on-year for March, compared to up 1.5 percent for February.
Within the payroll survey, strength was in construction and in the service-providing industries. Goods-producing industries were mixed in March as construction rebounded 56,000, following a 61,000 drop the month before.Manufacturing continued to decline with decreases of 16,000 and 11,000 in March and February, respectively. Natural resources & mining edged up 3,000 in the latest month. Overall service-providing industries rose by 137,000 in March, following a 180,000 boost in February. Gains were led by retail trade, up 36,000; health care, up 30,000; and government, up 23,000.
The swing in construction employment (large jump from a large decline) is the biggest difference in the strength of the March report compared to the February report. The swing in construction is likely related to moving from unseasonably cold weather in February to unseasonably warm weather in March. So, the strength in construction is likely temporary.
On the inflation front, average hourly earnings rose 0.3 percent in March, following a 0.4 percent increase in February. The consensus had projected a 0.3 percent boost in wages for March. Average hourly earnings are up 4.0 percent on a year-on-year basis in March, compared to up 4.1 percent in February. The average workweek in March rose to 33.9 hours from 33.8 hours in February. The market consensus had forecast a slight increase to 33.8 hours in the workweek from the initial January estimate of 33.7 hours.
Aggregate hours in manufacturing increased 0.2 percent in March, following no change in February.
Turning to the household survey, the civilian unemployment rate edged down to 4.4 percent from 4.5 percent in February. The markets had anticipated a 0.1 percentage point up tick to 4.6 percent. Household employment surged 335,000 in March, following a modest 38,000 decline in February. The labor force rose by 195,000 in March, while the number of unemployed fell 141,000. The employment-population ratio rose to 63.3 percent from 63.2 percent in February.
Overall, today's employment report reflects a healthy labor market with a small improvement in wage inflation. Despite the moderation in wages, the strong payroll numbers will likely push bond rates up. Come Monday, equities are likely to be chomping at the bit to head up due to the jobs report's signal that the economy is not too weak.
Nonfarm payroll employment slowed to a 97,000 rise in February, following a 146,000 boost in January and a 226,000 advance in December. With recent improvement in jobless claims, payroll increases may improve. However, given the weakness in manufacturing and in housing, expect the improvement to be in services. Wages were strong in February with a 0.4 percent gain, following a 0.2 percent rise in January. Markets will be watching to see if the average hourly earnings figure moderates to help sooth the Fed's inflation concerns.
Nonfarm payrolls Consensus Forecast for March 07: 135,000
Range: 70,000 to 216,000
Unemployment rate Consensus Forecast for March 07: 4.6 percent
Range: 4.5 to 4.7 percent
Average workweek Consensus Forecast for March 07: 33.8 hours
Range: 33.8 to 33.8 hours
Average hourly earnings Consensus Forecast for March 07: +0.3 percent
Range: +0.2 to +0.4 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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