Friday, April 5, 2013

March Employment Report

Yes, this blog is still active.  This morning's job report raises quite a few questions about the state of the economy.  First the headlines: the unemployment rate dropped to 7.6%, the lowest since December 2008 (good news?  not so fast).  The economy added 88,000 jobs (95,000 in the private sector); not a good number.  However, there were upward revisions to previous months.  Let's look at some of the details.

The labor force participation rate fell to 63.3%, the lowest since May 1979.  In addition, the employment-population ratio declined to 58.5% (compared to 62.9% before the recession in November 2007, 59.4% at the end of the recession in June 2009, and a post-recession high of 58.7%).  The U6 measure of unemployment declined from 14.3% to 13.8%.  Why did U6 fall by so much?  The number of people working part-time for economic reasons dropped significantly.  Also, there was a larger than normal drop off in the number of people not in the labor force who want a job (that number normally drops for seasonal reasons in March, but the decline was much larger than usual).  If that trend continues, it would suggest that the decline in the participation rate may be more permanent (i.e., people may not re-enter the labor force when conditions improve).

On to employment: after growing by 268,000 in February, nonfarm payrolls added only 88,000 in March.  Which sectors slowed down?  After adding 14,600 jobs in February, retail trade lost 24,100 jobs in March, led by declines in clothing stores (down 15,300) and building material stores (down 10,100).  Which sectors added jobs?  Temp agencies added more than 20,000 workers, food and drinking places added 13,000 (both low-paying sectors).  The brightest spot was specialty trade contractors (part of construction), which added over 23,000 jobs.  Was the slowdown a direct result of sequestration?  Though the federal government shed 14,000 jobs, most of that was due to the trimming of postal workers (down 11,700).  Though sequestration is likely to have an impact down the road, it's effects were minimal in March.

What's the initial takeaway?  Given the strong February report, one should not read too much in the March report, but it does raise concerns.  However, this was not a good report.  Both the establishment and household surveys were weak.  There's evidence that more people are "permanently" leaving the labor force.  Also, though construction is growing, other parts of the economy are sluggish.  Sequestration played little, if any, role, but the increase in the payroll tax probably had a more significant impact.  I hope to post more thoughts later today after digging into the report a little more.

Afternoon Update:  Though seasonal adjustments seemed to have distorted the employment data in recent years, that does not appear to be an issue in this case.  For example, using the average seasonal adjustments from before the recession would have resulted in an even a smaller increase in employment in March.  Also, several people have noted the Spring slowdowns in the last two years.  In 2011, the slowdown began in May (a gain of 115,000 compared to 304,000 in April) with a brief rebound in June before a summer slump.  In 2012, the slowdown began in April and lasted through the summer.  So this slowdown is earlier than in recent years.  Of course, one must be cautious in reading too much in one month's report.