Today’s Payroll data confirmed the sequential deceleration observed in both the ADP and NSA Jobless claims numbers earlier in the week. On balance, the labor market trends for March have followed the broader trends in the domestic macro data (ISM, PMI, Auto’s) where strong January and February numbers have been chased by been sequentially weaker March reports.
Below we provide a summary review of the March employment trends observed across both the Current Population Survey (Household Survey), which drives the Unemployment Rate, and the Establishment Survey (CES) which drives the NFP Number.
Non-Farm Payrolls (Establishment Survey): NonFarm Payrolls rose 88K in March on expectations of 190K and 268K prior (revised from 236) with y/y growth slowing 10bps sequentially to +1.4%. Private payrolls rose 95K on expectations of 200K and 254K prior (revised from 246) with y/y growth slowing 10bps sequentially to +1.8%.
Household Employment: BLS’s Household survey of employment showed total employment declining 206K sequentially with y/y employment growth decelerating 10bps sequentially to +0.9%.
Unemployment Rate: The Unemployment rate dropped to 7.6% from 7.7% m/m. The decline was principally a function of the 496K drop in the Civilian labor Force which was comprised of a 206K m/m decline in total Employed and a 290K m/m decline in total Unemployed. The greater decline in total Unemployed drove the improvement in the Unemployment rate despite the sequential weakening in the payroll data.
Labor Force Participation: The Labor Force Participation rate (LFPR) declined to 63.3% in March, the lowest level since May of 1979. As a reminder, the LFPR = Total Labor Force (Employed + Unemployed)/Civilian Non-institutional Population. The Civilian non-institutional population was up +167K m/m (+1.0% y/y) while the total Labor Force declined by 496K (+0.2% y/y). A lower numerator and higher denominator = a lower Labor Force Participation Rate.
Employment By Age: With the exception of the 55-64 year old cohort, employment growth across all age buckets decelerated sequentially in March. The ongoing barbell recovery in employment remains the story as employment growth within the 20-34 YOA & 55-64 YOA age demographics remains positive while 35-44 and 45-54 year olds remain mired in negative employment growth according to BLS Household survey data.
Part-Time & Temp Employment: Part-time employment (household survey) declined by 127K m/m while Temp employment growth (establishment survey) rose 20K in March. The growth trend across both series continues to be one of deceleration. Is this good or bad? Generally, it depends on where you are in the cycle. Historically, increased part-time and temp hiring out of an economic trough would be viewed positively as businesses tepidly increase labor into signs of a fledgling demand recovery with the expectation that growth in PT and temp workers acts as a temporal gateway to increased FT employment gains. We’d argue that we are out of trough conditions and, from here, to the extent growth in full-time employment can displace growth in part/temp employment and business can gain some further fiscal policy clarity into mid-year (post sequester, debt ceiling, budget resolution) consumption growth stands to benefit as workers gain health/retirement benefits, weekly wages rise, and confidence/clarity around future income supports marginal spending decisions.
State & Local Gov’t Employment: After a four year run of negative growth, state & local government employment growth continues to stagnate just below the zero line – coming in at -0.1% y/y in March. Collectively, states expect continued tax revenue growth in 2013 with total General fund revenues expected to surpass the 2008 peak in nominal terms. The continued recovery in revenues should be a tailwind for employment and investment, however, sequestration and uncertainty around impending fiscal policy decisions at the federal may be weighing on hiring decisions at the state/local gov’t level currently.
Sequestration: Anecdotally, consensus seems to be largely sitting on the CBO’s estimate for approximately 400K in direct employment cuts with an multiplier impact of ~100-150K over calendar 2013. Taking these estimates at face value, a smoothed impact would equate to an ~50K headwind to Claims & Nonfarm payrolls on a monthly basis. Actual cuts will invariably be more lumpy and while the impacts should be concentrated in 2Q/3Q, trying to handicap the impact on any given economic report is largely intractable. This reality increases the open-the-envelope risk on domestic econ data and sets up the potential for some negative sticker shock if some concentrated bolus of impact happens to flow through a particular release.
BLS Household Survey Data
BLS Establishment Survey Data
Christian B. Drake