A Bit More Ammunition for a Fed Rate Hike from March’s U.S. Jobs Report

Article source: CMDGroup

In March, the size of the U.S. labor force rose by nearly 400,000, as many working-age people who were previously on the sidelines jumped back into the job hunt.

As a consequence, the participation rate rose to 63.0%, a climb of 0.3 percentage points since the start of the year’s level of 62.7%.

Both developments are votes of confidence in possible employee prospects. They indicate more out-of-work individuals now feel they have a better shot at finding a welcoming face, corporate or otherwise, to pay them a living.

This notion received a boost from March’s month-to-month gain in the total number of non-farm jobs in the economy, +215,000, as reported by the Bureau of Labor Statistics (BLS).

Furthermore, the total employment increase was widely dispersed among industry categories, with payrolls in ‘education and health’ (+51,000) increasing the most; but with ‘retail trade’ (+48,000) and ‘leisure and hospitality’ (+40,000) not that far behind.

Construction (+37,000) and ‘professional and business services’ (+33,000) also showed well.

And the government sector (+20,000) finally jumped back into the hiring stream, although it all occurred at the local level (+19,000), as Washington (+2,000) and the states (-1,000) stayed pretty much flat.

Let’s cut to the chase and concentrate on the construction labor market numbers.

Of the three main sub-categories within construction, specialty trade contractors (+18,000) accounted for the largest share of the overall 37,000-jobs increase in the sector, with ‘heavy and engineering construction’ (+11,000) next, and ‘construction of buildings’ (+8,000) trailing.

Plus major ripples spread out from construction’s core employment gains. For example, as a line item under retail jobs, there was a 10,000 month-to-month forward march in employment by ‘building material and garden supply stores’.

One can chalk that figure up to the construction sector as well, bringing the total sum for the month to almost +50,000.

Construction’s unemployment rate in March was 8.7%, a decent enough improvement from 9.5% at the same time last year. At least the horror of a 27% construction-sector unemployment rate in February 2010 has receded into the six-years-ago past.

Further pursuing the subject of historical series, the graph accompanying this EAAG tells an interesting story.

Construction’s unemployment rate has now fallen about as low can be hope for, given that seasonality will almost invariably leave it somewhat elevated at this time of year (i.e., late winter).

The number of jobs in construction, though, is still one million short of its peak reached in 2006-2007. That was not a typical period, however. It was caused by the lag effect from a housing starts bubble that saw groundbreakings soar to 2.1 million units annualized in early 2006. (Housing starts are currently in the 1.0-1.1 million units range.)

The more realistic period for current employment in construction to beat is prior to that extraordinary ‘bubble’ and Graph 1 shows that the level of jobs in the sector has now improved to where it is nearly on a par with 2004.

Among major industrial sectors, construction is several lengths ahead in providing year-over-year employment growth at this time, +4.7%. Running several lengths back in second place is ‘education and health’ (+3.3%).

Also kicking up their heels are ‘leisure and hospitality’ and ‘professional and business services’ (each +3.1%).

The year-over-year jobs increase for the economy as a whole is +2.0%, with services at +2.6%.

The manufacturing sector is recording the most anemic performance, -0.2% year over year, and the nominal change in the number of assembly-line workers in March was -29,000.

It’s flattering that the rest of the world thinks enough of the U.S. economy to bid up the value of the greenback, but its sizable appreciation versus almost every other currency has made it harder for manufacturing firms to win export sales.

The fact that construction’s employment improvement is still only approaching a previous ‘norm’ helps to explain why wage gains remain under wraps. Year-over-year average hourly and average weekly earnings for all workers in the sector in the latest month were +2.2% and +1.5% respectively, according to the BLS.

Those increases were a little slower than for everyone drawing paychecks (+2.3% y/y hourly and +2.0% y/y weekly) in the economy.

Excluding supervisory personnel, construction picked up the pace − +2.4% y/y for average hourly earnings and +2.7% y/y for average weekly earnings – and surpassed what all non-boss workers were receiving, +2.3% y/y hourly and +2.0% y/y weekly.

There were some other noteworthy advances in employment at the more micro level in March, including the following. Health care (+44,000) accounted for about 90% of the jobs improvement in ‘education and health services’ (+51,000) in March, month to month, as ‘home health care services’ (+9,600) and ‘hospitals’ (+10,200) went on staffing binges. But that was nothing compared to ‘food services and drinking places’, where +25,000 jobs provided sizzle.

The BLS may be continuing to serve up appetizing labor market reports, but all-items inflation has stayed insignificant at +1.0% year over year, although the ‘core’ rate (which omits volatile energy and food items) has percolated to +2.3%.

In the latest couple of quarters, profits have waned and stock markets have stumbled.

Also, in an international context that includes a Europe that continues to flounder and a China that keeps scaling back expectations, enthusiasm about overall economic growth in the U.S. has been less than unrestrained in the early going of this year.

The Federal Reserve may feel compelled to follow up its small rate hike of last fall (+25 basis points, where 100 basis points = 1.00%) with another slight jog upwards in April or, even more likely June, but it will be hard pressed to provide convincing justification.

U.S. Construction Employment & Unemployment Rate

Data source: Bureau of Labor Statistics (U.S. Department of Labor).
Chart: CMD

Tags: Alex Carrick, CMD, CMDGroup, Economy, Federal Reserve, interest rate, job, rate hike

Category: CMD Group

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