It’s always hard to take a convicted view of a single month of data in isolation but there was little to celebrate in the March employment report. Total Nonfarm payrolls recorded their softest sequential gain since December of 2013, Jan/Feb saw a net negative revision of -69K, hours worked slowed by 0.2%, the breadth of industry employment gains declined and the Unemployment rate held flat for the wrong reasons.
The primary bullish rejoinder to march’s weak print is that weather played an outsized factor and similarly soft gains observed in Dec/Jan of last year were followed by the strongest annual gains in two decades. Further, while the +126K monthly gain in March was well below the TTM average of +269K, year-over-year growth in payrolls held near cycles highs at +2.27% YoY and was flat at 1.99% on a 2Y basis. We are in the twilight of the current expansion and whether the March data was simply a hiccup or a more ominous harbinger of things to come remains TBD>
Average hourly earnings in the private sector accelerated +10 bps sequentially to +2.1% YoY. However, earnings for nonsupervisory and production employees – which BLS estimates to be ~80% of the workforce – grew just 1.8% YoY, marking the 3rd month in 4 of sub 2% growth. While labor slack continues its slow march towards tautness, both wage and broader inflation continue to elude policy makers.
The U-3 Unemployment rate held flat at 5.5% while the U-6 rate (underemployment Rate) ticked down 10.9% from 11% - although it was largely negative fundamental developments that drove the stability/improvement as the flow of workers from unemployed to out-of-the-labor force rose and the labor force participation rate declined.
Job loss in the energy sector stabilized in March – at least according to BLS and Challenger Job Cut data. Oil & Gas extraction employment - which includes data thru March - saw a marginal increase in employment (following 3 consecutive months of job loss) in the latest month. Broader energy sector employment - data thru February – played catch-up, declining by -17K sequentially with the rate of YoY growth dropping 290bps sequentially to +1.2% - the slowest pace of growth in 56 months. So, while the energy sector has, in fact, been a source of relative weakness in recent months, it was not a driver of deceleration in March. With Energy state initial jobless claims accelerating in the latest week, however, we do expect further net declines in industry employment in the coming months.
An estimated 182K workers missed work due to severe weather in March. This compares with 148K last year and a trailing five year average of 130K so weather may have served as a modest drag – (recall that the BLS survey is conducted during the pay period including the 12th of the month and temperatures and initial claims were worse during this period than for the month on average)
Key housing employment demographics remained solid in March and should continue to flow thru to housing demand at a modest rate. We continue to like housing on the long side.
- 25-34 year old employment growth held near the cycle high (& at a premium to the broader average) at 2.6% YoY.
- Residential Construction employment rose +4K in March despite both adverse weather and softness in the balance of construction industry (total construction employment was down -1K for the month). On a year-over-year basis, employment growth continues to hold in the high single digits as conditions in the resi construction labor market continue to tighten.
Manufacturing employment declined for the first time since july of 2013 as the confluence of strong dollar, declining export demand, lower energy sector investment, and residual port shutdown impacts continue to weigh on the industry. The softness was not unexpected given the lackluster gain in February and the slowdown observed in the ISM employment sub-indices.
With global deflation/disinflation predominating, Japa-German yields anchoring the U.S. 10Y and a strong probability that Fed policy normalization drives a flattening in the curve we think the long-bond (TLT) continues to perform under most immediate/intermediate term macro scenario’s.