The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
The March employment report came out much worse than expected and is pointing directly to recession. Additional cracks are showing in the consumer sector from a variety of employment numbers. Nonfarm payroll employment in March fell for the third month in a row, declining 80,000, following a decline of 76,000 for February and a decrease also of 76,000 in January. March's drop in employment was worse than the consensus forecast for a 50,000 drop. The latest decline was led by declines in construction, manufacturing, and professional & business services. March's fall in payroll jobs was the worst since a 212,000 decrease for March 2003.
Not only did weakness continue for another month but the prior two months were revised down. February was revised down 13,000 and January down by 54,000 for a combined downward revision of 67,000.
Payroll weakness was led by the goods-producing sectors again but softness is spreading to services. Construction jobs fell by 51,000 in March, following a 37,000 decline in February. Manufacturing employment fell 48,000 after a 46,000 decline in February. Natural resources & mining was up by 6,000 in the latest month.
The service-providing sector has been flat for the last three months. Service-providing jobs rose a mere 13,000 in March, following a 6,000 rebound in February after declining 7,000 in January. In the latest month, weakness was led by declines in professional & business services and trade & transportation.
On a year-on-year basis, nonfarm payroll employment slipped to up 0.4 percent in March from up 0.6 percent in February.
However, wage based inflation pressure is still on the firm side. On the inflation front, average hourly earnings increased 0.3 percent in March, which also matched the market forecast. The average workweek was bumped up 0.1 hour to 33.8 hours March. For manufacturing, the average workweek was also up by the same amount but to 41.3 hours. Aggregate hours in manufacturing were unchanged in March, following a 0.2 percent dip the month before.
Turning to the household survey, the civilian unemployment rate worsened to 5.1 percent from 4.8 percent in February and came in worse than the consensus forecast for an increase to 5.0 percent. March's unemployment rate is the highest since 5.1 percent for September 2005. The latest number is well below the last peak at 6.3 percent in June 2003.
The March jobs report shows the labor markets softness spreading to the services sector - a clear indication that the overall economy is dipping into negative territory. The bottom line is that the consumer sector had been holding up well enough to keep the economy out of recession but that no longer seems to be the case. With unemployment rising and jobs falling, the consumer is going to grow more cautious and economic growth is going to be flat to negative for a while - at least until help comes from tax rebate checks and lagged effects from lower interest rates.
Nonfarm payroll employment has fallen for two months in a row, making the strongest argument that the economy is in contraction. Nonfarm payroll employment in February dropped 63,000, following a decline of 22,000 in January. February's decrease in employment was the largest since a 212,000 fall in March 2003. But wage-based inflation pressure is still somewhat on the high side as average hourly earnings advanced 0.3 percent in February, equaling January's boost. The average workweek was unchanged at 33.7 hours February. For manufacturing, the average workweek was unchanged at 41.1 hours in February. While net hiring is down, firms are still reluctant to lay workers off. The civilian unemployment rate actually dipped to 4.8 percent from 4.9 percent in January but is softer than the cyclical low of 4.4 percent.
Nonfarm payrolls Consensus Forecast for March 08: -50,000
Range: -150,000 to -15,000
Unemployment rate Consensus Forecast for March 08: 5.0 percent
Range: 4.8 to 5.1 percent
Average workweek Consensus Forecast for March 08: 33.7 hours
Range: 33.7 to 33.7 hours
Average hourly earnings Consensus Forecast for March 08: +0.3 percent
Range: +0.2 to +0.3 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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