Thu, Jan 21, 2021 @ 17:35 GMT
Home Contributors Fundamental Analysis Job Gains, Growth and Wage Fundamentals

Job Gains, Growth and Wage Fundamentals

Job gains were disappointing in March, primarily due to retail trade restructuring and some weather effects. Wage gains are consistent with labor productivity and inflation trends. FOMC on track for June.

Jobs Up 98,000 in March: One-off Weakness in 2017

Nonfarm payrolls rose a disappointing 98,000 in March, lowering the three-month average to 178,000 jobs. Over the past five years, there has been one month of weakness in jobs in the first quarter of the year, and three of those cases came in March.

Hiring in the services sector slowed sharply in March, with employers adding only 61,000 new positions-less than half the pace of the prior two months. Weakness was particularly noted in retail and likely reflects the impact of ongoing restructuring in that sector as well as difficulty adjusting for the timing of the Easter holiday. Retail has now been down sharply two months in a row.

In the goods sector, manufacturing employment posted another monthly gain (up 11,000), while mining employment continued its comeback as commodity prices have improved. Hiring in construction, however, was up just 6,000 jobs, likely reflecting some seasonal payback.

Wages: Not an Isolated Number but Part of the Economic System

Wages reflect the economic fundamentals of the labor market, and those fundamentals include productivity and inflation. Wages are not "low" arbitrarily as if some evil force keeps wages low.

As illustrated in the middle graph, wage growth tracks the trend in labor productivity growth and inflation over the past 50 years. This makes economic sense since nominal wage growth over the long-run should be the product of the growth in a worker’s output per hour worked and the change in the price level. During the current cycle, analysts have repeatedly commented on low productivity, and inflation has been persistently below the FOMC’s target of two percent. Moreover, nominal wage gains have also been real gains in several sectors such as information, manufacturing, wholesale trade and the private sector in general, where nominal wage growth has exceeded the pace of inflation as measured by the Fed’s benchmark, the PCE deflator.

Rough Time to Be Part of the Establishment

Strength in the household survey in March suggests the payroll survey likely exaggerates any weakening in the labor market. The unemployment rate fell to a new cycle low of 4.5 percent. Encouragingly, the decline was driven entirely by more workers finding employment while the participation rate held steady. Broader measures of labor market slack also signaled that the labor market is tightening, with the U-6 unemployment rate, which includes people working part-time for economic reasons, falling to 8.9 percent. With the household survey failing to corroborate the weak payroll numbers, this report does not deter our current expectation for the Fed to hike again in June.

Wells Fargo Securities
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2010 Wells Fargo Securities, LLC.

Featured Analysis

Learn Forex Trading