The Market Today
March Jobs Data Show School and Restaurant Re-Openings, Broad Acceleration
by Craig Dismuke, Dudley Carter
March Jobs Data Show School and Restaurant Re-Openings, Broad Acceleration: The March jobs data show evidence of further re-openings of restaurants and schools along with a broad-based acceleration of overall economic activity. The economy added 916k total nonfarm payrolls for the month, handily beating economists’ expectations, along with 156k in payrolls added to the previous two months’ tallies. This marked the best pace of job recovery since August. The private sector added 780k payrolls while government jobs increased 136k as government education jobs increased (state education +50k, local education +76k). Even after the stronger report, there remain 8.4 million lost payrolls since last February.
By sector, the data point to broad-based strength along with evidence of further re-openings. After a snowy February hit the construction sector, it rebounded adding 110k jobs. Manufacturing gained 53k jobs. Private education and healthcare added 101k jobs, again boosted by school re-openings (private education +64k). The leisure sector also saw a significant rebound, albeit partial. The sector added 280k jobs with most areas of activity gaining. Restaurants recovered 176k jobs but there remain 1.8mm lost. At the peak of the pandemic, the leisure sector lost 8.22 million jobs. There remain 3.13 million not yet recovered.
In the Household report, the unemployment rate dropped from 6.22% to 6.05% as 609k more people reported as employed, 262k fewer people reported as unemployed, and 347k more people reported as in the labor force. The prime-age participation rates jumped from 81.1 to 81.3 on a notable increase in female participation, and the overall participation rate climbed one-tenth to 61.5%. The number of persons reporting as part-time for-economic reasons fell 262k but there remains evidence of some longer-lasting damage in the labor market with the number of long-term unemployed up another 70k to 4.22 million. As it relates to the pandemic shifts, the BLS report noted that “21.0 percent of employed persons teleworked because of the coronavirus pandemic, down from 22.7 percent in the prior month.”
ICYMI – March 2021 Monthly Review: Treasury yields rose and stocks gained ground as economic optimism increased in March on rising vaccinations and the passage of trillions more in fiscal stimulus. The Fed acknowledged that the recovery had “turned up recently” but showed consensus support for keeping current policy and forward guidance unchanged, even as it raised its growth forecast and lower its expectation for unemployment. With most officials expecting an imminent uptick in inflation to be temporary, the median dot in the Fed’s rate plot still called for no rate hikes through 2023. The S&P 500 rose 4.2% even as the 10-year Treasury yield rose from 1.41% to 1.74%. The spread between the 2-year and 10-year yields widened from 127 bps to 158 bps, a new high since July 2015.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Virus Concerns to the North: While Europe’s struggles with the virus have been well reported, Thursday’s headlines of concern hit a little closer to home. Ontario’s Premier said a virus “emergency brake” would be put in place this weekend, limiting capacity at grocery stores to 50% and capacity at big box stores and other retailers to 25%. Indoor events will be banned and dining, both indoor and outdoor, prohibited. Earlier in the day, a report indicated nearly half of new ICU patients in the province were under 60.
24 HOURS OF MARKET ACTIVITY
Treasury Yields Recover Fractionally from Sharp Thursday Decline after Payrolls Trounce Median Expectations: The second quarter started in an interesting fashion as Treasury yields declined sharply Thursday despite solid economic data and strong gains for equities and oil. Following solid PMIs from Asia and Europe, the ISM’s U.S. manufacturing index was much stronger than expected in March (more below). The industry data followed a slightly disappointing jobless claims release and the President’s detailing on Wednesday his plan to spend $2.25 trillion updating U.S. infrastructure. By the close, the S&P 500 had gained 1.2% to set a new record above 4,000 but was outpaced by the Nasdaq’s 1.8% jump. Energy companies were the S&P’s top performers as crude jumped despite OPEC+ announcing a gradual production increase from next month through July. The group sounded confident about the demand outlook but retained flexibility to adjust further if needed. While the day’s developments might seem supportive of higher Treasury yields, the curve flattened lower. The 10-year yield dropped 7.1 bps to 1.67% after adding 33 bps in March (more below).
Heading into the release of the March jobs report, Treasury yields were nearly unchanged after attempting to inch higher overnight and stock futures were near their highs of the day. At 7:25 a.m. CT, S&P 500 contracts were 0.3% stronger and at a record while the 10-year Treasury yield was flat at 1.674%. Following the surprisingly strong March report and positive prior revisions, the 10-year yield began to move modestly higher and was trading up 2.1 bps on the day at 1.69%.
March Brings Heat for the Manufacturing Sector: The ISM Manufacturing index jumped 3.9 points in March to its highest level since 1983 as the production and new orders indices rose to their highest levels since 2004 and a backlog of demand continues to push the sector’s supply constraints. The employment index rose to its highest level in three years and portends an acceleration in the rate of job recovery. The manufacturing sector is still missing 581k payrolls from its pre-pandemic level. The disruption in the supply chain remains a story with the supplier delivery index rising to its highest reading since 1974 and the backlog of orders jumping to its highest level on record.
Widespread Weakness in Construction Spending Points to Weather, Again: Not surprisingly, February’s construction spending data showed additional evidence of a weather-related slowdown. Construction activity fell 0.8%, and like other construction-related data, the declines were widespread. Public construction spending led the declines, down 1.7% as every category except public safety fell. Private non-residential activity fell 1.0% with every category falling except for manufacturing projects. Residential activity fell 0.2% on a 1.4% decline in multi-family and a 0.2% drop in home improvement projects.
Bullard Believes Fed Framework Even More Powerful than Academic Theories: St. Louis Fed Bank President Bullard posted commentary yesterday saying that three academic theories related to price pressure are all “pointing in the same direction – toward more inflation pressure in 2021.” The three theories he references include the monetarist theory (an increase in money supply leads to inflation), the fiscal theory (large fiscal deficits result in inflation), and the Phillips Curve theory (the tightening labor market will lead to inflation pressure). He concludes by noting, “Perhaps the most important reason why inflation might be headed higher” is the Fed’s new policy framework in which they will not pre-emptively tighten policy.
Daly Sees Higher Inflation Temporarily: San Francisco Bank President Daly addressed the mathematical reasons why inflation is likely to be higher over the next year. She said, “We know there is an expected and importantly, temporary rise in inflation that is coming this year because we had low readings of inflation during the worst months of Covid in 2020.” She went on to say that policymakers “have to look through these temporary increases.” When asked how fiscal spending might affect monetary policy, she did not reference inflation but highlighted that the spending could make the country more competitive and raise potential output longer term.