An employee uses a winch to move a wheel on the bus assembly line. (Photographer: Chris Ratcliffe/Bloomberg)

U.S. Labor Market Back on More Even Keel After Blowout February

(Bloomberg) -- The optics for U.S. payrolls were uninspiring last month without altering the big picture: A tight labor market is helping lift wages and underpinning the Federal Reserve’s plan to keep raising interest rates.

The return of more seasonable winter weather resulted in some payback, as hiring cooled more than forecast in March following an upwardly revised blowout number in February, Labor Department figures showed Friday. The jobless rate held at a 17-year low, while the advance in average hourly earnings matched projections.

The three-month average payroll gain of 202,000 -- compared with the 182,000 average in 2017 -- signals demand for labor will help lift wages and sustain economic growth that’s also likely to get a boost from tax cuts. A drop in construction employment and smaller gains in other weather-sensitive industries added to the volatility, cushioned by steady job growth in manufacturing that now faces a potential headwind from President Donald Trump’s tariff threats.

“The weather was a big influence” in the March figures, and the data so far this year indicate a “solid economy,” Rick Rieder, global chief investment officer for fixed-income at BlackRock Inc., said on Bloomberg Television. “It leaves the Fed in the same place: they’re going to keep moving, but they’re not in any race, they don’t need to rush it.”

Highlights of Employment (March)

  • Nonfarm payrolls rose 103k (est. 185k); Feb. revised to 326k from 313k
  • Jobless rate held at 4.1% for sixth month (est. 4%)
  • Average hourly earnings rose 0.3% m/m and 2.7% y/y (matching ests.)

After the report, Fed funds futures showed a decline in the odds for tightening, with the probability of higher rates after the June meeting dipping to around 72 percent from 76 percent on Thursday. The central bank raised interest rates in March by a quarter percentage point and investors expect at least two additional hikes this year. A June increase is seen as likely, but not a certainty.

Later Friday, Fed Chairman Jerome Powell delivers his first economic-outlook speech since he took the helm in early February. He is scheduled to speak at 12:30 p.m. local time in Chicago.

Economists estimate that monthly payroll gains even below 100,000 will be sufficient to keep pushing down the unemployment rate, which is derived from a separate Labor Department survey of households and remains below Fed estimates of levels sustainable in the long run. Policy makers see the jobless rate reaching 3.6 percent at the end of next year.

U.S. Labor Market Back on More Even Keel After Blowout February

Revisions to prior reports subtracted a total of 50,000 jobs from payrolls in the previous two months, according to the figures.

Snowstorms in the Northeast probably restricted hours worked and kept people away from their jobs, and March may also have seen some payback after warmer temperatures boosted employment in February, economists said.

Construction payrolls fell by 15,000 in March, the first decline since July, following a gain of 65,000 in February. Retailers cut 4,400 workers, following a rise of 47,300. Hiring also slowed in leisure and hospitality, another weather-sensitive category, with payrolls up just 5,000 after rising 23,000 the prior month. Manufacturing added 22,000 jobs, consistent with other reports showing strength in factory activity.

While the average workweek for all private employees held at 34.5 hours in March, hours edged down for production and nonsupervisory workers, as well as those in manufacturing. A shorter workweek has the effect of boosting average hourly pay.

Wages probably also benefited as the 15th of the month, a payday for many people, fell within the government’s survey week that includes the 12th.

“This job market is in good shape,” said Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who had projected slower hiring. “This is some payback for strong job growth in February,” and given the weather influence, “there’s no reason to be depressed.”

“The Fed has the all-clear to continue raising rates gradually,” Sweet said. The overall labor-market picture is “pretty much steady as she goes.”

What Our Economists Say

The strength in manufacturing employment, which has posted the best 12-month streak since 1998, bodes well for a turnaround in service-sector hiring in the near term. Similarly, the construction soft patch is due to be short-lived. As such, Bloomberg Economics is not changing its overall assessment of the labor market. Accelerating economic growth in an environment of mostly stable wage pressures should result in continued modest acceleration in the pace of hiring through at least mid-year.

-- Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics

Read more here for the full report.

Employers continue to hire to meet demand, and remain reluctant to let go of existing employees amid a shortage of qualified workers. Weekly unemployment claims are hovering near the lowest level since 1973.

The outlook for steady hiring and bigger after-tax paychecks will help sustain consumer spending growth, which is nonetheless projected to cool in the first quarter following the strongest quarter in three years.

The participation rate, or share of working-age people in the labor force, decreased to 62.9 percent after jumping 0.3 percentage point to 63 percent in the prior month. The rate, still hovering near the lowest level since the 1970s, will continue facing downward pressure as older workers retire. At the same time, improving job prospects are helping draw many people from the sidelines.

In another positive sign highlighted by economists Mickey Levy and Roiana Reid at Berenberg Capital Markets, the number of job leavers as a share of unemployed surged in March to 13.1 percent, the highest since May 2001. That provides “further evidence of better confidence in job finding prospects and increasing churn, which should put upward pressure on wages,” they wrote in a note.

At the same time, the specter of a trade war with China is a wild card for the outlook, particularly after Trump raised tensions on Thursday by ordering his administration to consider imposing tariffs on an additional $100 billion in Chinese imports.

©2018 Bloomberg L.P.