Last Friday the monthly U.S. government employment report for March was released, and the results were on the disappointing side. Of the various economic reports, this one tends to be among the most widely followed.
The actual number reported was an increase of 126,000 new jobs, with the unemployment rate holding constant at 5.5 percent on the national level. What was disappointing was that this report broke the string of months having greater than 200,000 in job creation. The unemployment rate at 5.5 percent was not a surprise, but labor force participation continued to be very low, which was a negative.
The obvious concern is whether this report signals the start of a period of slower employment growth, or was just a one-month aberration. To try to determine this we need to look at whether there were any unusual factors during the month of March, and also if other reports were also conveying a similar message.
Two reasons widely cited for the relative weakness were weather and the strength of the U.S. dollar hurting manufacturing. Weather is always a tricky variable to analyze because there is usually something unexpected happening in various parts of the country. However, February in much of the country was colder and snowier than normal relative to March, and the employment report in February was strong.
The stronger U.S. dollar is definitely having an impact on U.S. manufacturing. The last few weeks the dollar has tended to stabilize somewhat, but is still considerably stronger on a year over year basis. The impact of weather is certainly more temporary in nature versus the change in the U.S. dollar, though it is questionable if weather impacted March employment very much.
Looking at other reports it is less clear if the economy is slowing down. A report by ADP, which is for private employers, showed 189,000 jobs created in March versus 214,000 in February, which was only a modest decline versus the government report. Surveys of purchasing managers were not as strong for manufacturing, as they had been in previous months, but services are still at relatively robust levels.
I think someone can conclude that manufacturing will likely be more subdued for a period of time, in part due to the strong U.S. dollar. However, the services side of the economy, which is much larger than manufacturing, appears to be in good shape. Consumers benefit from a stronger U.S. dollar, as prices tend to be lower. This is most noticeable with the price of gasoline.
In trying to determine future employment trends we must remember not to place too much weight on one month’s results. The March employment number will be revised, so it is not clear if the final number will signify as much weakness, as the initial report. Normally you will need to see several months’ reports to determine, if there really is a change in direction of the economy.
There are certainly some industries that are not doing as well currently. The most obvious being the oil industry as lower prices are starting to cause a significant decline in drilling activity. This is impacting manufacturers, who are supplying parts to the oil and gas industry.
While manufacturing is certainly a key contributor to the U.S. economy, the number of people employed in that area relative to services has been declining over time. Therefore, even if manufacturing employment enters a period of relative weakness I don’t think the overall impact on our labor market will be too significant.
My best guess for now is that the relatively weak March employment report will be a one-month aberration rather than a start of a new trend. While job creation in 2015 may not be as strong as last year, I think employment gains of 200,000 per month will be more likely than 100,000. Therefore, with the possible exception of manufacturing, I would expect the labor market to continue to improve.