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March Jobs Report: The Little Light We Have
Tuesday, Mar 29, 2016

What to Watch For:

  1. Forecasters are flying relatively blind into this report because it comes so early in the monthly cycle of data. A number of the most common predictors will be published just a few days before or even after the report by the Bureau of Labor Statistics (BLS). Consensus forecasts call for a net rise in nonfarm payrolls of about 205,000.
     
  2. Don’t expect a big move in the unemployment rate from its current level of 4.9 percent. It would take an unusually large monthly move to change this headline number, and that seems unlikely at this stage of the economic cycle.
     
  3. Keep your eyes on labor force participation. Data from iCIMS indicate that when the participation rate began rising last fall, the proportion of job applications using social network profiles began to dip, suggesting returning workers may need to update their skills.
     
  4. iCIMStalent supply-demand ratio looks unlikely to budge much from its February level, but that may conceal another round of escalation in the war for talent, if some of the new applicants are newly returned to the job market and less competitive as candidates.

Unusual Uncertainty

Economists’ scorecard for the labor market is a little shorter this month, because the BLS is releasing the employment report on April 1, with a shorter lag relative to the publication date of some standard early indicators, and even before some others are published at all. Notable among these are the national surveys of the manufacturing and service sectors released by the Institute of Supply Management, which come out on the first and third business days every month. Meanwhile, the Conference Board’s survey of Consumer Confidence is out, but it sent mixed signals: the “jobs plentiful” sub-index rose (25.4 percent versus 22.8 percent) but “jobs hard-to-get” did too, and by a similar amount (26.6 percent versus 23.6 percent).

The ADP report indicated a private payroll gain of 200,000 in March. While this report is not a high-fidelity signal for monthly fluctuations in total nonfarm payrolls’ first print, it suggests this was another on-trend month for the job market. Similarly, although claims have reached a new cyclical low of just below 260,000 this month, it’s hard to draw a strong conclusion. At this stage of the economic cycle, jobless claims have limited value except as an advance warning of a downshift in hiring – as opposed to predicting monthly fluctuations in job growth. Aside from some volatility around year-end, initial claims have generally held below 280,000 since last summer, compared to levels above 300,000 from mid-2007 until February 2015.

A nonfarm payrolls print in line with the consensus forecast of 205,000 would be modestly below nonfarm payrolls’ 12-month moving average of 223,000, but still more than enough to keep the unemployment rate declining over time. If these forecasts are right, this may be a jobs report noteworthy more for its details than its headline. Notable among these details: labor force participation and wages.

Participation is Up, But Quantity Does Not Imply Quality

Recent increases in the labor force participation rate (LFPR) seem to be holding competition for jobs steady by at least one metric: iCIMS’ talent supply-demand ratio (the number of applicants per job filled) looks unlikely to budge much from its February level of 23.3. Since we still don’t know exactly who these workers are and what the state of their skills is, we don’t know exactly what their impact will be. The proportion of job applications received by iCIMS customers through profiles stored on social networks declined from 11 percent in Q3 2015 to 8 percent in Q4 2015, just as the LFPR began to inch up. If workers coming back to the job market are not up to speed on the latest recruiting techniques, their other skills may be lagging as well.

In the long run, increased participation is certainly encouraging, both for national economic growth potential as well as the workers themselves. However, in the short run, an influx of lower-skilled workers may serve to depress productivity and wage growth. Once the re-entry of returning workers stalls – which may or may not coincide with a local peak in labor force participation rate – then we may see wages begin to rise.

All Eyes (Still) on Wages and Inflation

The rate of wage growth ticked up in January and down in February, in part due to quirks in the calendar, so this month may give us a cleaner read. While it has already been many months that the wage data have been the dog that didn’t bark, you can be sure we are just one strong print away from setting off a storm of chatter about wage inflation. Fears of the Fed overshooting on inflation are starting to grow even among the senior ranks of the Fed’s policy makers, as evident from some of last week’s speeches by Fed policymakers. As long as new workers can be sucked in, that may hold down wages, especially if corporate profits are declining. The trick is no one can be certain in advance where the turning point lies.

Unemployment Rate

The unemployment rate printed at an unrounded 4.918 percent in February, compared to the Fed’s expectations for it to reach 4.7 percent by year-end. Over the last 6 months, the unemployment rate has declined by 0.031 percentage points on average, and it would have to decline by more than twice that rate to reach a level that would be rounded down to 4.8 percent in March. This is particularly unlikely since unemployment gains should slow as we approach what economists refer to as full employment – the minimum rate of unemployment that can be sustained without initiating a dangerous cycle of inflation. As has been widely discussed, this is one of the longer economic expansions of the last 100 years and one of the steadiest in terms of consistently positive net job growth month after month. March looks unlikely to break that winning streak.

 

about the author

As chief economist at iCIMS, an industry-leading provider of talent acquisition software, Josh Wright leads a team of data scientists in analyzing emerging trends in the U.S. labor market