The Market Today

March Payroll Growth Slips on Weather and General Weakness While Earnings Show More Traction

by Craig Dismuke, Dudley Carter


March Payroll Growth Slips on Weather and General Weakness While Earnings Show More Traction: March’s labor data showed a slightly stronger rate of earnings growth but a weaker rate of job growth than expected due largely to bad weather during the reporting period.  Total nonfarm payrolls grew 103k for the month, including 102k private payrolls and 1k new government jobs.  Economists projected 185k total payrolls for the month.  The February payroll report was also revised up from313k to 326k while the January report was revised down from 239k to 176k for a total of -50k in revisions.  Looking at March payrolls by sector, the weather impact is apparent.  Construction payrolls fell 15k after averaging +21k over the last year.  Retail jobs dropped 4k after rising 47k in February (this may also be related to a rash of recent store closings announced by big box retailers).  Leisure payrolls rose just 5k versus a growth rate of +24k per month over the past 12 months.  While there is no definitive metric in the payroll report to identify weather as the main cause for weakness, the household survey provides that evidence.


In the household report, the unemployment rate held at 4.1%.  Economists expected the rate to fall to 4.0%.  In the details, January and February’s mass re-entrance to the labor force was partially reversed, as expected, with 158k fewer people reporting as In the Labor Force.  However, the number of employed persons also dropped, down 37k.  As it relates to weather, 159k people reported as unable to work due to weather.  Another 1,066k full-time workers indicated they could only work part-time because of weather.  The number of long-term unemployed fell 75k and those working part-time for economic reasons dropped 141k bringing the underemployment rate down from 8.2% to 8.0%, matching its lowest reading of the cycle.


More importantly to the markets, average hourly earnings rose 0.3% MoM bringing the YoY rate up from 2.6% to 2.7%.  Hours worked held steady at 34.5.  With the exceptions of the construction, IT, and other services sectors; every other sector showed MoM wage growth that was stronger than the 6-month run rate.  There does appear to be a bit of growing wage pressure, but at this time it falls short of being breakout growth.


While the March jobs data disappointed expectations, it appears that weather played some part in that along with a natural reversion to a more sustainable growth rate.  Payroll growth is still expected to be stronger-than-expected in 2018 than initial projections and the labor market remains very tight.  At this point in the cycle, job growth is not the concern.  Rather, seeing the tight labor market translate into actual earnings growth is the focus along with the related concerns of a rise in the rate of inflation.  The March data showed a firmer rate of wage growth, although it is not yet strong enough to signal a breakout from the general trend.



Yesterday – Treasury Yields, Stocks Rose for a Third Day as Trade Tensions Took a Break: U.S. yields and equities edged up for a third day as market angst around trade tariffs eased further. Peter Navarro, White House trade adviser, told CNBC that talks between the U.S. and China would take place in coming weeks and Larry Kudlow, White House economic adviser, reemphasized that nothing is yet written in stone. While the tariff proposals from the U.S. and China have become more detailed this week, markets continued to take solace in both sides’ apparent preference for negotiations over a tariff battle. The 2-year yield finished up 1.0 bps at 2.30%, its highest since March 21, while the 10-year yield rose 2.9 bps to 2.83%. Over the last three days, the 2-year yield has added 5.6 bps while the 10-year yield has climbed almost 10 bps. Kudlow did, however, indicate a desire for others to also stand up to China. WTO filings on Thursday showed that both Japan and the European Union have asked to join the U.S. in challenging China’s practices related to intellectual property rights and technology transfers.


Overnight – Trade Talks Escalates: The ultimate outcome of the trade saga between the U.S. and China may be negotiations in lieu of tariffs, but markets’ nerves may be shot before any potential deal can be reached. Exhibit A, the 450-point initial overnight drop in Dow futures after President Trump said in a statement that he was contemplating tripling the initial $50B of Chinese goods that could be subject to tariffs. In the statement, the President said he had “instructed the USTR to consider whether $100 billion of additional tariffs would be appropriate,” in response to “China’s unfair retaliation”, a reference to China’s announcement of tariffs on $50B of U.S. goods earlier this week. China’s Commerce Ministry has already responded, pledging to “follow suit to the end and at any cost.” Escalation past the initially proposed levels is what the markets fear and what we’ve said poses the true economic risk. These developments will likely force investors, whose anxiousness around trade had lessened over the last 24 hours, to revisit the matter alongside this morning’s U.S. jobs report. Equity futures and Treasury yields had moved up from their lows ahead of the release, and showed just a modest disappointment to this morning’s payroll report. The 10-year yield is down 2.2 bps.



ICYMI – Vining Sparks 2Q Economic Update Webinar: We hosted our 2nd Quarter Economic Outlook Update on Thursday morning during which we discussed the significant increase in market volatility this year.  We discussed why the increased volatility is a symptom of a larger underlying challenge to economic stability. Click here to view a replay of the webinar and click here for a copy of the slide deck.


Bostic Expects Inflation Will Pick Up and Is Comfortable with a Temporary Overshoot: Atlanta Fed President Bostic said Thursday that he was confident in the economy this year and expects that fiscal stimulus will have a notable impact in the short run. He noted that he expects inflation will hit 2% during the next quarter or two and is comfortable with a temporary overshoot of the official target. In a later interview, Bostic said he believes there is a little more tightening to do before the overnight reaches its neutral setting, a range he believes is between 2.25% and 2.75%. He added that the Fed should stop there, signaling he’s not in favor of the temporarily restrictive policy setting implied in the current dot plot. On other topics, he doesn’t see the recent market volatility as a current problem for the Fed and remarked that trade protectionism is usually a headwind for growth.

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