March Jobs

Payroll growth in February came in above expectations, and January’s blockbuster payroll gain survived the first pass of revisions. The pace of hiring in the first two months of 2023 was about on pace with that of the summer of 2022, about midway through the Fed’s tightening relative to the present. Employers in February added 311,000 jobs, with private-sector payrolls gaining 265,000 jobs, while the unemployment rate rose to 3.6 percent. The labor force participation rate rose to 62.5 percent. Here is a brief summary of the major economic indicators since the last jobs numbers: The Producer Price Index for final demand decreased 0.1 percent in February; The Consumer Price Index increased 0.4 percent in February; Real average hourly earnings decreased one cent from January to February; Orders for durable goods (including defense and aircraft) decreased 1.0 percent in February; New home sales increased 1.1 percent in February; The Price Index of U.S. imports decreased 0.1 percent in February; ISM Services Index decreased 3.9 percentage points to 51.2 percent in March; ISM Manufacturing Index decreased 1.4 percentage points to 46.3 percent in March; Consumer Confidence Index increased 0.8 points from 103.4 to 104.2 in March; ADP reported private sector employment increased by 145,000 jobs in March. Gordon's Guesstimate: March Jobs Anyone who’s ever gotten a speeding ticket can understand the simple notion that it’s possible to be slowing down, and yet still be moving along at an appreciable rate of speed. Such is the case with the U.S. economy generally, and the labor market in particular. Continuing the analogy, consider the speeding motorist, who probably started braking right about the time they spotted the speed trap. There are a number of intervening steps along the way from the depression of the brake pedal to the slowing of the car. We are seeing some of these intervening steps now, as the Fed enforces speed limits on the U.S. economy. The sweep of labor market indicators since last month’s jobs report has been broadly negative. The indices for manufacturing activity and employment were down significantly. The index for services activity remains expansionary, but fell significantly, as did the related employment index. The JOLTS series, which is lagged by a month, show a significant paring back in job openings. To the extent that job openings are supposed to absorb declining labor demand, it appears as though that series is showing the brakes have been applied. About 1 million job openings vanished in 30 days, but employers added over 300,000 workers to their rolls at the same time. Unemployment insurance claims were revised substantially upward over the past three months. The picture that paints is somewhat nuanced, however. The claims data point to greater job losses than previously estimated, but employment nevertheless grew at a rapid rate of about 400,000 jobs per month over the first two months of the year. The economy is slowing, and to a large degree by deliberate policy. That’s not the only force at work of course –it is but one dynamic in a multifaceted equilibrium of pushing and pulling forces. As noted previously, Congress has been at somewhat cross-purposes with the Federal Reserve, having continued to enact additional deficit spending measures. The recent turmoil in the banking sector, all else equal, should act much like an interest rate hike. Indeed, JP Morgan recently estimated that the recent turmoil could reduce national income by anywhere from 0.5 to 1.0 percent over the next year or two. But all is not equal – the Federal Reserve and the executive branch opened the liquidity spigot for banks, which should mitigate the fallout somewhat. In fact, current credit conditions may well have eased. The upshot of the recent data and events points strongly to an economy that is slowing, but is not slow. It’s braking, not breaking, at least not yet. This guesstimator is assuming a 230,000 payroll gain. The U3 should remain at 3.6 percent, while hourly earnings should see an 8-cent increase for a 4.2-percent yearly gain.