Big March Miss: U.S. Created Just 126,000 Jobs
The U.S. added just 126,000 jobs in March, well below expectations of 245,000 jobs, leading to concerns that a long run of labor market momentum has stalled. The government also sharply revised downward job creation numbers for the first quarter.
Over the prior 12 months, employment growth had averaged 269,000 per month so the disappointing March numbers were very much unexpected.
"Now we begin the process of trying to figure out whether this is a one-off situation because we know growth was weak during the first quarter, well short of expectations," said Mark Hamrick, an economic analyst with Bankrate.com, in an interview on FOX Business. "No doubt about it, with the payroll shortfall here, this is a disappointing jobs report."
The headline unemployment rate was 5.5% last month, matching expectations, and holding steady at its lowest level in six years, according to data released Friday by the Labor Department.
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Employment continued to trend up in professional and business services, health care, and retail trade, while mining lost jobs.
Once again, wages and the labor force participation rate, which are two indicators closely watched by Federal Reserve policy makers for signs of broader economic growth, barely moved.
For months, the Fed has been keeping a close eye on wage growth and the labor force participation rate, both of which have lagged in recent months even as job growth was strengthening and the unemployment rate was tumbling from a 2009 recession-period high of 10%.
In March, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents, or 0.3%, to $24.86. That's better than the 0.1% growth reported last month. Over the past year, average hourly earnings have risen by 2.1%, or well below the 3% target range economists believe is a sign of healthy growth.
In March, the civilian labor force participation rate was little changed at 62.7%, still hovering at its lowest level in over three decades. Since April 2014, the participation rate has remained within a narrow range of 62.7% to 62.9%, according to the Labor Department.
Wage growth and labor force participation both impact inflation, and inflation has stubbornly remained below the Fed's target rate of 2% as those two indicators have lagged.
Wage growth tumbled, not surprisingly, during the financial crisis as an estimated 8.8 million Americans lost their jobs. After bottoming out in December 2009, wages haven’t rebounded in line with the strong job growth the economy has experienced recently, especially over the last 12 months.
The Impact of Wage-Growth Weakness
Weakness in wage growth and labor force participation has been caused by so-called slack in the jobs market, a condition cited repeatedly by Fed Chair Janet Yellen in her defense of maintaining an extremely accommodative monetary policy, namely near-zero interest rates.
One reason wages have remained low is because many of the millions of full-time jobs lost during the recent recession were replaced with part-time and temporary jobs. This has created a huge surplus of employees who would rather be working full-time. Employers are acutely aware of this surplus and know they don’t have to raise wages to attract qualified workers.
Meanwhile, the labor force participation has hovered at its lowest levels since the 1970s because many people who lost their jobs during the recession have stopped looking for work altogether rather than return to work at a part-time or temporary position. When someone stops looking for a job they are no longer counted by the government as part of the survey used to determine the unemployment rate.
The Fed has said it won’t start raising interest rates until it reaches its dual mandate of full employment and price stability. The central bank has defined the former as an unemployment rate in a range of 5.2%-5.6% and the latter as an annual inflation range of 1.7%-2%.
The unemployment rate has now dropped into that desired range, but the inflation target is trickier. Inflation isn’t likely to move higher until wages go up significantly.
Fed policy makers have recently expressed confidence that the tightening jobs market will soon start pushing wages higher, allowing them to raise interest rates at some point before the end of 2015, perhaps as soon as the summer.
On Friday, the Labor Department reported that employment in professional and business services trended up in March by 40,000. Job growth in the first quarter of 2015 averaged 34,000 per month in that sector, below the average monthly gain of 59,000 in 2014.
Within professional and business services, employment continued to trend up in architectural and engineering services, computer systems design and related services, and management and technical consulting services.
Health care continued to add jobs in March, adding 22,000. Over the year, health care has added 363,000 jobs. In March, job gains occurred in ambulatory health care services, adding 19,000, and hospitals by 8,000, while nursing care facilities lost jobs, shedding 6,000.
In March, employment in retail trade continued to trend up by 26,000, in line with its prior 12-month average gain. Within retail trade, general merchandise stores added 11,000 jobs in March. Employment in mining declined by 11,000 in March.