The employment report last week was considered a disappointment, even though the national unemployment rate dropped to 8.2 percent. The reason for the concern was that the number of new jobs created for the month was 120,000, while expectations were for an increase of over 200,000. My sense is that the economy did not start to weaken again, though reports from prior months were likely indicating strength that was overstated.
When employment numbers are being reported there are adjustments made for seasonal factors. For example retail employment is significantly higher in December versus January, and normally there is less construction activity in winter months because of inclement weather. Seasonal adjustments attempt to account for these factors; otherwise the job reports would show significant gyrations on a month-to-month basis. Because this winter has been very mild across much of the country, employment reports were helped by the warm weather in January and February. Therefore, a number of businesses had done their hiring earlier than normal, which accounted for the relatively weak March numbers.
Another point to consider is that the employment reports are based on a survey, not a complete count of every individual. Even our census every decade is less than perfect, as people can be missed. We have over 140 million people employed in our country, yet financial markets react to a report that misses expectations by fewer than 100,000. I believe a miss of less than .1% is not that significant, especially given the limitations of the sampling involved?
A good cross check would be to look at other economic data to see if other indicators were also showing a softening of economic activity in March. New jobless claims are a good leading indicator, and have been stable to trending down, over the past month. The survey of purchasing managers for both services and manufacturing indicates an economy continuing to expand in March, with little change from February. In addition March auto sales were reported at 14.4 million units annualized, which was one of the best reports we’ve had over the past several years.
While I do not place too much significance in one month’s report, the overall employment situation is still not good, especially in California where the unemployment rate is well above the national average. We are still not close to regaining the jobs in this recovery that were lost during the recession. One key reason is the loss of construction and real estate related jobs, that have not come back during this recovery, though construction employment is finally starting to stabilize. However, corporate profits are now at a record level due to productivity gains and strong profits overseas, which has helped the stock market.
Last year employment reports were strong early in the year, and then weakened during the summer months. The market is concerned about that occurrence again this year. However, last year there were a number of unusual international events, which are not likely to repeat themselves in 2012. We need several months of weaker employment data to really signify a change in trend. Otherwise, I would not be too concerned about this most recent report, and would expect the economy to continue to exhibit moderate growth for the balance of this year.