Questions Surround Jobs Report. But I'll Take It
Non-farm payroll growth of 228,000 seasonally adjusted positions surprised Wall Street; here's why I believe it's accurate.
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Can it be? As much of the macroeconomic data released of late has been anything but supportive of strong economic performance ... is it possible? So many questions come to mind. The Challenger report on futures layoffs released on Thursday was foreboding. Is April the month where federal employees and employees of government contractors start showing up in these surveys in earnest? Perhaps.
For now... eat, drink and be merry. We still have these tariffs looming and we still have a central bank that is about to be torn between fighting inflation and trying to throw a lifeline to the economy. Still, I think we'll take a stronger-than-expected report on labor when we can get one. As I had during the recovery from the pandemic during the past administration in DC, I look at this survey as either dated or subject to a changing environment. However, the survey's accuracy, for a change, is not in doubt. Let me explain...
Job Creation
For March, from the Establishment Survey, the Bureau of Labor Statistics is reporting non-farm payroll growth of 228,000 seasonally adjusted positions, which was well above projections for a rough 132,000. February payrolls were revised lower by 34,000, while January payrolls were revised lower by 14,000. That leaves a net gain of 180,000 jobs, which still handily beat Wall Street.
Incredibly, alongside this number, from the Household Survey, growth in employed persons increased by 201,000 individuals, which may be the most in sync I have ever seen these two federal surveys cross the tape. Additionally, if one knocks off the 19,000 public sector hires in this survey, we come fairly close to the 155,000 private sector hires reported by ADP on Wednesday. This puts all three measures that we follow for job creation pretty close to being in line with one another. It's been years since we had not been forced to doubt the legitimacy of at least one or two of these three survey results.
Key Data
The Unemployment Rate increased in March from 4.1% in February to 4.2%. The reason, though, was a positive one as participation increased to 62.5% from 62.4% and the employment to population ratio held steady at 59.9%. Simply put, more people looked for a job as the civilian labor force increased by 232,000 persons, but the number of unemployed persons only increased by 31,000 individuals.
Very interestingly, as a net 201,000 new jobs were filled (using the household survey), the number of people working part-time for economic reasons decreased by 157,000 people and the number of people working part-time for non-economic reasons decreased by 136,000 persons. The implication there would be that a rough 494,000 full-time jobs were filled. As a result, the underemployment rate dropped to 7.9% from 8.0% despite the increase in the unemployment rate.
It was truly nice to see that average weekly hours printed at 34.2 for March and revised up to 34.2 from 34.1 and up from 34.1 in January. Now, demand for 34.2 hours on a weekly average from full-time laborers is not strong by any means, it is off of the lows. We would generally like to see this number bottom at 34.3 and live up around 34.4. January 2025 was the weakest month for this particular data-point since January 2010.
There were some mixed results on the wage growth side of things. On a month-over- month basis printed at month-over-month growth of 0.3%, in line with expectations and an acceleration from growth of 0.2% in February. Year-over-year growth in wages, however, dropped to 3.8%, from 4.0% in February and below expectations for 4.0%.
Demographics
The unemployment rate along gender, ethnic background and education...
- Adult Men held steady at 3.8%
- Adult Women dropped from 3.8% to 3.7%.
- Teenagers increased from 12.9% to 13.7%.
- Whites dropped from 3.8% to 3.7%.
- Blacks or African Americans increased from 6.0% to 6.2%.
- Asians increased from 3.2% to 3.5%.
- Hispanics or Latinos dropped from 5.2% to 5.1%.
- High School Dropouts dropped from 6.0% to 5.8%.
- High School Graduates increased from 4.2% to 4.1%.
- Some College / Associate Degrees held steady at 3.5%.
- Bachelor's Degrees and more increased from 2.5% to 2.6%.
My Thoughts
No doubt about it. This is a much stronger employment report for March than I think anyone expected. The real positive would be that all of the metrics seem to confirm one another, so there is probably some accuracy in the report. A second positive would be the obvious surge in demand for full-time employment, at least temporarily reversing a years-long trend in the opposite direction.
On the negative side, the unemployment rate decreased for high-school dropouts and high-school graduates, while increasing (from 2.3% in January) to 2.6% for college grads plus. That raises serious questions in regard to the quality of the jobs being created. The data on year-over-year wage growth may confirm this.
On Policy
Does this slow the talk of recession? Probably not. The information here is a month old. The oversized tariffs are new. The retaliation by other nations is just beginning. Does this slow the idea that the Fed could reduce short-term interest rates in the near-term future? They still have to consider inflation. This definitely would give me pause if I were a member of the FOMC.
As for Fed Funds futures trading in Chicago ... there has only been a minor reaction to these numbers. A 56% probability for a quarter-percentage point rate cut is being priced in for June 18, after the jobs data release, up from 54% earlier today. An 84% likelihood of 100 basis-points worth of rate cuts are priced in through December at this time as opposed to 85% this morning. In other words, that market is not reacting.
At the time of publication, Guilfoyle had no position in any security mentioned.
