March 2013 Employment Report

Click image for larger view

According to the Bureau of Labor Statistics’s (BLS) establishment survey, non-farm payroll employment rose by a meager 88,000 in March. The unemployment rate (based upon the BLS’s household survey) edged down by 0.1 percentage point to 7.6 percent. Trade, Transportation & Utilities and Financial Activities were the two private supersectors reporting contraction in employment. Government employment contracted at the federal and local levels. The change in total non-farm payroll employment for January was revised from +119,000 to +148,000, and the change for February was revised from +236,000 to +268,000. 

Click image for larger view

Reaction to the report ranged from “Kaboom!” (not in a positive sense) to “The best awful employment report I've ever seen.” Good news first:

·   Temporary jobs increased by 20,300.

·   Construction added 18,000 jobs.

·   The number of people unemployed for five weeks or less fell by 203,000 to 2,464,000.

·   The index of aggregate hours worked in the economy surged 0.3 percentage point (from 97.9 to 98.2).

·   The average workweek increased by 0.1 hour, to 34.6 hours.

·   Overtime increased by 0.1 hour, to 3.4 hours.

·   The official (“U-3”) unemployment rate declined to a new post-recession low of 7.6 percent.

·   The U-6 unemployment rate, which includes discouraged workers, fell 0.5 percentage point (from 14.3 to 13.8 percent).

·   Because January and February’s estimates were revised upward (by a combined 61,000 jobs), this estimate could also be revised higher.

Click image for larger view

Now for the bad news:

·   With expectations of 190,000 new jobs (the lowest forecast was 100,000), this report represented the biggest “miss” to expectations since December 2009 and the worst “print” since June 2012.

·   The ratio of employed persons to the entire population remained mired in the range seen since late 2009. So, despite the enormous expansion of the Federal Reserve’s balance sheet and the trillions spent on fiscal stimulus, there has been no meaningful change in the proportion of the population finding work.

·   The number of people not in the labor force jumped by 663,000 (taking the total to a new all-time high of 90.0 million). I.e., 90.0 million people who could otherwise contribute to the workforce have chosen (at least for now) to not actively seek employment.

·   The labor force also shrank by 496,000, which is the primary reason why the above-mentioned U-3 and U-6 unemployment rates dropped. Were it not for people dropping out of the labor force, the U-3 unemployment rate would be (depending upon one’s assumptions) well over 10 percent. 

Click image for larger view

·   The civilian labor force participation rate (the share of the entire U.S. population 16 years and older working or seeking work) dropped by 0.2 percentage point to a new 30-year low of 63.3 percent.

·   Average hourly earnings dropped by a penny relative to February. Moreover, the annual percentage increase in average hourly earnings of production and non-supervisory employees shrank back to 1.8 percent. With the price index for urban consumers rising at an annualized pace of 2.0 percent in February, wages are once again falling behind in real terms (i.e., wage increases are not keeping up with official estimates of price inflation). 

Click image for larger view

·   Full-time employment rose by just 62,000 jobs, while part-time employment shed 350,000. 

Click image for larger view

·   Withholding taxes were at record levels in March, not surprising since payroll tax rates jumped at the beginning of the year. As analyst Mike Shedlock put it, “Add in increases in state taxes and the average Joe has been hammered pretty badly.” 

Click image for larger view

Employment is converging with the previous peak at a slower pace than all prior recessions going back to 1973; circles in the chart above indicate when previous recoveries reached their corresponding pre-recessionary employment highs. The economy still has 2.86 million fewer jobs than at the January 2008 peak. 

Click image for larger view

The figure above presents a variety of forecasts related to when employment might return to the January 2008 peak (dashed line) or converge with the number of jobs that likely would exist had the recession not occurred (gray line). At March’s rate of job gains, it will take until December 2015 to recapture January 2008’s employment level (i.e., without adjusting for population growth).

Bottom line: If there is one good piece of news, it is that the total number of employed people went up. The problem is that, adjusted for population over the last year, the U.S. economy is one million jobs “in the hole,” or about 250,000 jobs worse than last month.

Bob Eisenbeis, chief monetary economist at Cumberland Advisors hazarded a guess about how, and how quickly, the employment picture could influence the Federal Open Market Committee’s (FOMC) monetary policy decisions. “FOMC policy makers have emphatically stated that they will maintain an accommodative monetary policy until the [U-3] unemployment rate reaches 6.5 percent,” wrote Eisenbeis. “However, in recent speeches and testimony, Chairman Bernanke has also stated that the 6.5 percent number is only a guidepost and conditions in the labor market more broadly will ultimately determine if and when the Committee will begin to change its policy. This raises the obvious question, what are those conditions, and what will the Committee be looking at beyond just the 6.5 percent rate?”

“…[F]or the FOMC to act,” continued Eisenbeis, “it will have to see marked improvement in conditions for part-time workers and evidence that they are moving from part-time to full-time employment. There will have to be substantial gains in youth and minority employment, and job-creation numbers stronger than the 200,000 per month we have observed recently, before the FOMC could justify a move from accommodation. Two caveats to this general conclusion are warranted, however. The first is that it is assumed that inflation remains relatively benign and in the 2.0-2.5 percent range and inflation expectations are well-anchored. The second is that it is possible that the FOMC may cease reinvesting maturing assets, as it has so indicated, several months before making changes in the federal funds rate. We don’t expect these moves to take place until, at the earliest, near the end of 2014 or well into 2015.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.