March nonfarm payrolls mixed as hiring slows

Summary:

• Employers add 98,000 jobs to their payrolls in March
• March payroll print unusually low in the backdrop of strong growth in the labor markets
• January payrolls revised from 238k to 216k; February payrolls revised from 235k to 219k
• Combined net revision shows 38k net decline in jobs over the past two months
• Average hourly paycheck of workers grew $0.05 cents from the previous month
• Average hourly earnings rise 2.7% from a year ago

In a rather surprise payrolls data, latest figures from the US Bureau of labor statistics showed that the pace of employer hiring slowed down sharply in the month of March amid mixed signals which also saw the unemployment rate falling the lowest level in a decade.

The nonfarm payrolls rose 98,000 on a seasonally adjusted basis in March from the previous month. January and February payrolls were revised down to show a net decline of 38k. Economists polled were forecasting a headline payrolls print of 175k.

The US unemployment rate

The US unemployment rate dropped to 4.5%, from 4.7% in February. The unemployment rate in March was the lowest since May 2007.

The average hourly earnings rose 2.7% in March on a year over year basis. The gains in wages were seen to be steadily accelerating in recent month, but remain shy of December’s print of 2.9%, which was the strongest since June 2009.

The latest US labor market data suggested that conditions might be tightening despite evidence of some underlying slack. The labor markets have been the brightest spots in the US economic recovery. However, despite nearly six years into the recession, the share of Americans opting out of the workforce remains below the pre-recession lows.

The labor force participation rate

The labor force participation rate was seen at 63% in March and has been trending lower in the past decade.

Another measure of unemployment which includes those who stopped looking for work and part-time workers looking for full-time jobs fell to 8.9% in March, which was down from 9.2% in February. The underemployment rate was the lowest since December 2007.

The revisions in January and February which previously posted strong numbers slowed due to seasonal factors. February was said to be the second-warmest month on record according to the National Oceanic and Atmospheric Administration (NOAA). The warm weather was seen to have pulled ahead hiring plans in some of the sectors.

Meanwhile, the winter storm, Stella which hits parts of the east coast in mid-March put a dent in the hiring plans in some sectors such as construction. The industry added only 6,000 jobs in March signaling a sharp decline from 59,000 in February.

Among the sectors, health care and social assistance added 16,700 jobs during the month while manufacturing added 11,000 jobs marking a fifth consecutive monthly gain in the sector.

The U.S. labor market has been steadily rising adding jobs at a steady pace since October 2010, which marked a rather long stretch since the Great Recession of 2008. The improvement in the labor market allowed the U.S. Federal Reserve to start being normalizing policy.

The most recent rate hike came in March where the central bank raised interest rates by 25 basis points and maintained its view for two more rate hikes later this year.

The central bank also signaled that it would begin unwinding its balance sheet, a move many consider to be equivalent to a rate hike itself. This is expected to begin towards the fourth quarter of this year or by the first quarter next year.

The March payrolls report is unlikely to deter Fed officials who are unlikely to change policy based on one month’s data.