- Gluskin Sheff
The March jobs report was a mixed bag for many economists.
Nonfarm payrolls increased by 89,000, far fewer than expected. But the unemployment rate fell to a nearly 10-year low of 4.5%, and wage growth remained near its strongest level since the recession.
But other details made the report worse for David Rosenberg, the chief economist at Gluskin Sheff, who expects that economists will downgrade their forecasts for first-quarter economic growth in the coming weeks.
“This goes down as one of the more bizarre employment reports I have seen in many moons,” Rosenberg wrote to clients on Friday.
Rosenberg noted two weather-related distortions that typically plague the first three jobs reports of any year.
The warmest February on record boosted construction jobs two months ago, but hiring cooled again in March, reducing overall employment by 10,000, according to Rosenberg. Winter Storm Stella, which blasted through the Northeast in mid-March, also shaved up to 20,000 jobs off the headline on Friday.
“So strip out all the weather impacts, and the payroll figure still would have ended up being well short of the consensus at a mere +128,000,” Rosenberg said. Economists had forecast 180,000 nonfarm payrolls.
“Then tack on the downward revisions of 38,000 to the first two months of the year, and the bottom line is that there is no possible way to put lipstick on this pig of a report,” Rosenberg said. “Full stop.”
Rosenberg also noted that some of the weaker sectors were those that catered to final consumer demand. Retail lost 29,700 jobs in March after a loss of 34,700 in February. Hiring has declined amid a wave of store closures – about 3,500 stores are expected to close over the next few months.
“It may well be that retailing accounts for barely more than 10% of the total employment pie, but keep in mind that it is a sector that caters to 70% of the overall economy known as the American consumer,” Rosenberg said.
But online retailers increased hiring on net, adding 2,200 jobs. And the share of retail sales online (about 9% of total retail sales) is catching up to general-merchandise stores (12%), according to Bloomberg.
But Rosenberg noted that real consumer spending shrunk in both January and February. The Atlanta Federal Reserve Bank’s GDPNow model on Friday lowered its forecast for first-quarter real consumer spending and cut its overall projection for Q1 growth to 0.6% from 1.2%.
The data on payrolls is derived from the Bureau of Labor Statistics’ establishment survey. But its household survey, from which unemployment and participation rates are derived, was a lot stronger.
Still, Rosenberg found it odd that the unemployment rate’s drop to 4.5% – indicating a tighter labor market – could not nudge average hourly earnings up by more than 0.2% month-on-month.
In 2014, Fed Board Chair Janet Yellen said wage inflation of 3% to 4% would be “normal.”
“If the truth is always in the price, how can the hawks on the Fed seem so comfortable with the view that we are close to being a fully employed economy?” Rosenberg said.