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Solid Payroll Growth Lures New Job Seekers
Friday, Apr 01, 2016

Sometimes the economic chatterati get themselves worked up about a particular aspect of an economic report and the story moves against them, but sometimes the release comes in right on narrative. The March jobs report falls in the latter category: the headline numbers all looked both strong and on-trend – even if less robust than February – leaving the wonkish labor force participation rate (LFPR) to take a star turn. While the rise in the LFPR reinforced the overall strong tone of the report, weakness in the goods-producing industries was an Achilles heel that will keep the Yellen Fed in “watchful waiting” for some time before relaunching a drive to higher interest rates.

Nonfarm payrolls rose a net 215,000 in March, only modestly below their prior 3-month moving average of 228,000 (which has now slipped to 209,000). The unemployment rate ticked up to 5.0 percent, but this was actually a good thing, since it reflected an increase in civilians entering the labor force and the search for gainful employment. Indeed, total household employment rose slightly, to 151.3 million from 151.1 million, while the LFPR rose to 63.0 percent from 62.9 percent, for its highest level since March 2014.

As ever, average hourly earnings were in the spotlight as well, rising 0.3 percent, for a year-on-year growth rate of 2.3 percent – unchanged from February and below January’s pace of 2.5 percent. Thus, wages remain contained, at least in part because of those new workers entering or re-entering the job market. As we noted in our preview of the jobs report, iCIMS’ system data provide some evidence that some of those new job seekers may need to build their skills in job searching, so they may need to keep building their on-the-job skills as well. If so, that could also contribute to the slower productivity and wage growth that are driving the gap between growth in payrolls and overall economic output. Indeed, the rise in part-time workers (6.1 million from 6.0 million) and the so-called underemployment rate (9.8 percent from 9.7 percent) may indicate that some of these new entrants to the labor force are having trouble finding full-time work.

Job growth remained strong across most industries. The split between private service-providing industries (199,000 versus 251,000 prior) and private goods-producing industries (-4,000 versus -15,000 prior) remained intact. Note that the goods-producing numbers were not as encouraging as that improvement in the category headline. Yes, losses in mining and logging decreased a bit (-12,000 versus -17,000 prior) and construction had a good month (37,000 versus 20,000 prior), but those are the directions many observers have already been expecting these industries to take, as the housing recovery rolls on and energy-sector losses slow. The real disappointment here was the deterioration in manufacturing (-29,000 versus -18,000 prior), where hopes of a turnaround have been rising after some improvements in regional manufacturing surveys. Indeed, the nation-wide ISM manufacturing survey out later this morning also indicated another contraction in manufacturing employment, although overall factory activity improved. In services, the moderation in gains was widespread, and one of the most notable moves was a turnaround in temporary payrolls (4,000 versus a combined -56,200 over the prior two months), which bodes well for future jobs reports.

For investors and policy makers, there are two reasons to see this as a status quo report that supports the Fed’s current gradualist approach to rate hikes:

  1. the rise in the LFPR and part-time work supports the notion that sustaining accommodative monetary policy can help eliminate slack in the labor market, and
  2. the continued weakness in manufacturing employment underlines downside risks to the outlook.

Financial market prices imply expectations that the Fed will not raise rates again until after September and it will take consistently strong U.S. data for at least another month before expectations of anything more aggressive are likely to take hold. There has been a fair amount of discussion recently of whether the Fed has abandoned data dependence for a pure risk management approach, but the Fed’s language about basing policy on both “realized and expected economic conditions” remains a gaping loophole for the risk management. Since this report makes little or no difference to the ongoing discrepancy between current U.S. economic performance and downside risks from abroad, Fed policy will continue to hinge on expectations and risk management, however frustrating that may be for market participants.

For job seekers and employers, the message of this report is that the party is not over. Job growth remains strong, the Fed appears eager not to rock that boat, and more candidates are entering the job market. If you’re already in the game as a seeker, being up-to-date on not only job-specific skills but also recruiting techniques can differentiate you from less savvy newbies and returners. For employers, clearly the competition is stiff. Now is the time to look for the hidden gems out there and start thinking about how to cultivate and onboard talent.

 

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