United States: Solid payroll growth in March assuages fears of a pronounced economic slowdown
The March jobs report released by the Bureau of Labor Statistics (BLS) calmed market fears of a steep deceleration in the economy, showing robust payroll growth after disappointing data in February. Non-farm payrolls increased 196,000 in March, up from the upwardly-revised but still feeble 33,000 registered in February (previous estimate: +20,000) and beating market expectations of 170,000 job gains. March’s payroll growth thus came in right around the 200,000 average monthly job gains recorded in the 102 months of the current record-breaking labor market expansion.
Payroll gains in the services sector drove the upswing in March, again underpinned by strong growth in healthcare, while professional and business services also posted healthy increases. The leisure and hospitality sector rebounded from minor losses in February to average gains in March. On the other hand, wholesale trade, retail trade and temporary help services all shed jobs in the month, while payroll growth in transportation and warehousing was only meager. A surprising point of the March report was the weakness in manufacturing, which shed jobs for the first time since 2017, contradicting survey data—such as the ISM Manufacturing index—which suggested healthy job growth in the month On the flipside, construction and mining both rebounded from the payroll contractions registered in February, which were likely in part due to adverse weather conditions.
Meanwhile, the unemployment rate was stable at February’s 3.8% in March, but the participation rate dropped from 63.2% to 63.0%. As Leslie Preston, senior economist at TD Economics, noted, “The civilian labor force has shrunk in each of the first three months of the year. The participation rate is still a tick above its year ago level, but as baby boomers increasingly move into retirement, there will continue to be downward pressure on the headline participation rate”. Turning to earnings, the March data disappointed market analysts, with average hourly earnings growth at 0.1% month-on-month (February: +0.4% mom; expectations: +0.2% mom) and decelerating to 3.2% year-on-year, from 3.4% in February and missing expectations of 3.4%. Overall, the March report does confirm a modest cooling down of the labor market—and thus the broader economy—in the first quarter, but is likely to reassure investors fearing an imminent and marked slowdown.
Lastly, the short-term outlook looks set to continue on a slight downward trend. According to James Knightley, chief international economist at ING, “we expect payrolls growth to continue averaging 150-200,000 through the summer given reasonable economic activity. […] Nonetheless, we think there will be some lost momentum in hiring, but this is more due to a lack of available labour to fill positions”. More pessimistic is Leslie Preston, noting that “economic growth is slowing from its 3% pace over the course of 2018 to just over 2% this year. This process will mean more muted monthly payroll gains, consistent with a mature phase of the economic cycle. We expect job gains to slow below 150k per month through the remainder of 2019”.