March Jobs

The February jobs report was unalloyed good news. Employment gains were widely distributed throughout goods and service-producing industries, and the unemployment rate is firmly in 2019 territory. Employers in February added 687,000 jobs, with private-sector payrolls gaining 654,000 jobs, while the unemployment rate fell to 3.8 percent. The labor force participation rate rose to 62.3 percent Here is a brief summary of the major economic indicators since the last jobs numbers: The Producer Price Index for final demand increased 0.8 percent in February; The Consumer Price Index increased 0.8 percent in February; Real average hourly earnings decreased nine cents from January to February; Orders for durable goods (including defense and aircraft) decreased 2.2 percent in February; New home sales decreased 2.0 percent in February; The Price Index of U.S. imports increased 1.4 percent in February; ISM Services Index decreased 3.4 percentage points to 56.5 percent in February; ISM Manufacturing Index increased 1.0 percentage point to 58.6 percent in February; Consumer Confidence Index increased 1.5 points from 105.7 to 107.2 in March; ADP reported private sector employment increased by 455,000 jobs in March. Gordon's Guesstimate: March Jobs The Federal Reserve Board announced a quarter- point increase in the U.S. central bank’s discount rate on March 16, signaling the tightening of U.S. monetary policy for the first time since 2018. In announcing the increase, Federal Reserve Chairman Jay Powell articulated the view that the labor market was tight to “an unhealthy” level. The reference week for the March employment report was immediately prior to this observation, and the major indicators of labor market performance suggest that the March labor market was very tight indeed. At the end of February, the ratio of unemployed workers to job openings had been unchanged since November and remains at historically low levels. Initial unemployment insurance claims fell from February to March to a level that is among the lowest recorded in the series’ history (along with one print in December) before inching a bit higher last week. Meanwhile, workers are leaving their existing jobs at a near- record level. Earnings growth has been highly elevated, but for last month’s print, which may well have been animated by the return of a cohort of lower-income workers following the latest COVID-19 wave. There are clouds gathering, at least from one perspective. Americans are sitting on excess savings from a combination of factors, not least of which was the robust income supports provided in successive rounds of legislation concluding with the American Rescue Plan Act. Subsequent inflation is chipping away at those savings, evidenced by the decline in inflation-adjusted consumption. Consumers’ expectations for the future have also eroded in the face of rapidly rising prices. Yet these clouds will not have gathered over the March reference week, which will likely show another month of strong hiring, lower unemployment, and higher hourly earnings. This guesstimator is expecting an employment gain of 625,000, an unemployment rate of 3.7 percent, and a 13- cent increase in average hourly earnings.