Thu, Mar 23, 2023 @ 11:50 GMT
HomeContributorsFundamental AnalysisHot U.S. Labor Market Cools Off in March

Hot U.S. Labor Market Cools Off in March

Non-farm payrolls increased by 98k in March, well below the consensus expectation of 180k. Downward revisions to the previous two months results in a cumulative 38k jobs vanishing from the statistics, but leaves job gains above 200k in both months.

Private payrolls rose 89k (consensus: 175k).The slowdown in private payroll employment was observed across both goods and service sectors, as well as in almost all broad industry categories. Private services hiring rose 61k, less than half the pace from the previous month. Still, hiring in the services sector was driven by business services (+56k), and health care & education (+16k). Goods hiring slowed materially as well, with manufacturing (+11k) and construction (+6k) recording much more subdued job gains after the strong showing at the start of the year. Government hiring (+9k) remained modest, with federal level hiring dropping by 1k.

Despite the unexpectedly weak payroll print, the household survey showed a strong change in employment of 472k, pushing the unemployment rate down by 0.2 percentage points to 4.5%. A smaller influx of people into the labor force helped keep the participation rate at 63.0% and unchanged on the month. Other underemployment measures were also lower, with the broadest measure (U-6) down 0.3pp to 8.9% – the lowest reading since December 2007.

Average hourly earnings rose by 0.2% during the month, matching consensus expectations. Moreover, wage growth for February was revised up slightly (+0.1 ppt) to 0.3% m/m. Year-over-year wage growth eased from 2.8% to 2.7% in March.

Average weekly hours were unchanged at 34.3.

Key Implications

Undoubtedly, the headline payrolls print was disappointing particularly when taken together with the strong reading from the huge ADP print mid-week (+263k) and the consensus expectation for a gain of 180k. However, there was a risk that today’s print was set to disappoint as there were a number of temporary factors at play. For one, unusually warm weather in January and February likely helped pull forward activity in the construction sector. Furthermore, the snowstorm that hit much of the eastern U.S. during the survey reference week likely contributed to the disappointing payroll print.

But there are still some nuggets of good news tucked away in the details of this report. The household survey showed a reduction in all unemployment indicators, suggesting that labor market slack continues to be absorbed. Hourly wages advanced, while average hours remained broadly unchanged, all of which should help support consumer spending in the months ahead. Moreover, 98k jobs is likely just above trend employment growth for an economy that is operating near full employment. Overall, this report will is unlikely to change the Federal Reserve’s calculus as they consider their next moves to tighten monetary policy.

TD Bank Financial Group
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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