March Non-Farm Payrolls Trail Expectations; Economist Sees Healthy Normalization

After a strong start to the year, the labor market showed symptoms of normalizing, allaying some concerns of an overheated economy. 

The below-consensus job gains for March — along with intensifying fears of a brewing U.S.-China trade war — spooked the markets, as the major averages all opened lower for Friday.

The U.S. economy added 103,000 jobs in March, according to the Bureau of Labor Statistics. The number was far below the 193,000 job additions that were expected, on average, by economists.

The February number was upwardly revised by 13,000 to 326,000, while January's was downwardly revised by 63,000, with the net revision for the first two months of the year being 50,000. The BLS non-farm payrolls data was at odds with the ADP report released earlier in the week, which showed an addition of 241,000 jobs by the private sector in the U.S.

The numbers should be taken in a broader context, said Bankrate economist Mark Hamrick. 

"The job market is widely regarded to be close to full employment. So, hiring gains should be slowing at this point in the expansion," he said.

Notwithstanding the soft March number, the first quarter's average monthly hiring pace of 202,000 is above the average for all of last year, Hamrick said.

"If we begin to see signs that momentum is truly slowing in coming months, that's something different [and] more worrying," Hamrick said.

The labor force participation was little changed at 62.9 percent, and the employment-population ratio stayed put at 60.4 percent. The employment market has been robust in recent times, with the economy adding more than 2 million jobs in 2017 and the jobless rate plunging to a 17-year low of 4.1 percent. The average workweek for private payroll employees remained unchanged at 34.5 hours.

The average hourly earnings for employees on private payrolls rose by 8 cents to $26.82. The metric is considered a measure of inflation.

"Over the year, average hourly earnings have increased by 71 cents, or 2.7 percent," the BLS release said. The 2.7-percent year-over-year increase is "not so hot" as what was seen a few months ago, said Bankrate's Hamrick. 

See also: China ETFs Dealing With Trade Tensions

In a tweet on the March jobs report, Mohamed El-Erian of Allianz said the soft headline number and subpar labor participation should ease concerns about an overheated economy.

A Breakdown By Sector

Manufacturing jobs climbed 22,000, with durable goods manufacturing being the standout performer in the sector. Health care jobs also rose by a similar magnitude, in line with the sector's average job gains over the past 12 months. About 9,000 jobs were added by the mining sector, while professional and business services jobs expanded by 33,000. On the other hand, retail jobs contracted by 4,000, and the construction sector lost 15,000 jobs following February's gain of 65,000.

Economic, Monetary Implications

The softness of the March data along with the geopolitical storm kicked off by the Sino-U.S. trade standoff introduces uncertainty into the economic outlook.

"Beyond the latest employment data, risks appear to be rising in both the short and long-term. The president is upping the ante in a war of words over trade that threatens to turn into something damaging to global growth, which has been one of the positive dynamics lifting the nation's manufacturing sector of late," Bankrate's Hamrick said.

The economist forecast the potential of rising inflation risks if tariffs are fully enacted, making the Fed's job more challenging. "Even under a better case scenario, a high degree of uncertainty has been injected into the business environment, which is never a plus," Hamrick said.

The March report has not done much to change the Fed's outlook for an ascending trajectory of interest rate hikes, the economist said.

"As monetary policy eventually ceases to be lifting U.S. economic activity, consumers (and borrowers), business and government will all feel the impacts of surging interest rates." 

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