Most analysts were expecting another solid jobs report in March, with somewhere between 240,000–250,000 jobs created. Instead, a surprisingly low 126,000 jobs were created while January and February number were revised downward by 69,000 jobs. These figures not only break the string of twelve consecutive months with over 200,000 jobs created, they drop the monthly average for 2015 below 200,000 jobs (197,000 per month pending future revisions).
Should we be concerned? Perhaps, but not overly so. Jobs reports have arguably outpaced other measures of growth, leading Neil Irwin of the New York Times to suggest that jobs growth has sagged to more closely match the overall slower economic growth. Irwin calls the economic outlook “muddy,” and that seems to be the perfect description of mixed economic signals and a lack of clarity. In the overall view, there are still plenty of positives within the economy.
Let’s examine the March numbers in a bit more detail.
This jobs report was not uniformly bad across all sectors; there were a few relatively bright spots. Professional and business services and health care added 40,000 and 22,000 new jobs respectively, perhaps adding to the overall wage gains with higher-paying jobs (the average hourly earnings increased seven cents to $24.86). Retail employment is still trending up with 26,000 new jobs, even though retail sales have fallen in January and February.
What happened in the other sectors? Three general excuses are being offered: terrible weather, slumping oil prices, and the strong dollar.
The winter weather can be a tiresome excuse—there’s always bad weather somewhere in the wintertime—but it seems to be a reasonable explanation for part of the drop. Growth in the construction and leisure/hospitality sectors slowed by 87,000 jobs in March, and those are arguably the two most weather sensitive sectors.
The mining/logging sector lost 11,000 jobs in March thanks to layoffs in the oil and gas companies within that category. Since December, crude oil prices have led to an estimated 80,000 layoffs. While low oil prices help consumers and the overall economy in several ways, they do take a toll on jobs in the industry.
Manufacturing jobs also dropped by 1,000, presumably in part because the strong dollar is depressing exports. Exports have dropped continuously since reaching a high of 198.6 billion in October of 2014.
Winter weather will be disappearing soon (although it may not yet feel that way where you live) and oil prices have landed their economic punch and stabilized somewhat. Of the three excuses, the strong dollar is a little more disturbing in the long term. Given the worldwide economic slowdown there is little reason to expect the dollar to weaken, so 2015 may be a rough year for American exports overall.
Other numbers in the March jobs report show a sprinkling of bright spots, but nothing to get terribly excited about.
As noted above, hourly wages enjoyed an increase—even though there’s no broad reason why. The broader employment numbers and recent consumer spending numbers don’t support the premise of an economy growing fast enough to produce upward wage pressures. We speculate the rise may be due to the types of jobs created compared to past months and high-profile minimum wage announcements from Wal-Mart and McDonalds.
The overall unemployment rate held at 5.5% while the labor force participation rate dropped slightly to 62.7%, continuing its yearlong fluctuation between 62.7% and 62.9%. Meanwhile, the more comprehensive U-6 unemployment rate dropped to 10.9%, representing the best number since August 2008 and the general continuation of a slow decline since 2013.
Combine this with the 15-year low last week in those filing for unemployment claims, and what do we have? Mud, Neil Irwin would say—a mix of mild positives and negatives. The employment situation does appear to be slogging through the mud, so to speak, to maintain slow growth—but at the moment that’s preferable to the growth patterns in most of the world.
We look at this report as a temporary downward shift in what is still a likely trend of slow growth throughout 2015. Attempting to conclude anything on one month’s data is generally futile. Keep your eye on the broader picture and longer-term trends. Remember, it’s impossible to call anything a trend with a sample size of one.
The slow decline in the unemployment rate is likely to continue, just not at the rate we would all like to see. This jobs report as a single data point is probably not indicative of future reports, but it does bring the overall jobs average a little more in line with the rest of the economic data and the most recent projections.
The March jobs report keeps the same Fed narrative as well. It reinforces the caution that Fed Chair Janet Yellen has been suggesting for some time. It seems that no interest rate hike is coming in June, and if there is a rate hike at all this year it is likely to be minimal. With interest rates this low and an eventual rise all but inevitable, stocks are still going to be far more attractive than bonds. However, as stocks take what is likely to be a temporary dip it’s a great time to reassess your portfolio and look for any relative bargains.
Expect it to take several months, if not the better part of a year, for the economy to emerge from the mud and finally hit a stride of greater growth.