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Disappointing Jobs Data By WSS Research Desk

By Carlos Guillen

The most recent government jobs data has served to take the last bits of enthusiasm that were left after a slew of indicators began showing less than expected results in the last few weeks. Sure, the unemployment rate did edge lower, but that was the result of a massive move of workers into the "not in the labor force" category, and yes there were jobs added to the economy, but this missed expectations by a mile. While most on the Street have been aware of the so called sequester, it appears that some of its delayed effects are now being felt.

According to the latest data from the Department of Labor, the unemployment rate in March was 7.6 percent, landing below the Street's consensus of 7.7 percent and declining from the 7.7 percent posted for the prior month. While a decreasing unemployment rate would be typically considered a positive action, the manner in which the rate declined was the discouraging aspect of the result. The household survey showed that those employed declined by 206,000 while those unemployed decreased by 290,000, which means that 496,000 workers moved out of the civilian labor force. Clearly this was a disappointment, particularly since 130,000 workers had moved out of the labor force in February. The reason why the unemployment rate improved was that those unemployed decreased at a faster rate than those employed, but as we said, both groups decreased because they moved out of the labor force.

The even more discouraging aspect of the jobs data was that non-farm payroll employment in March (derived from the establishment survey) increased by much less than expected. The report showed that the increase in non-farm payrolls was just 88,000 while the Street's consensus called for a gain of 192,000, which by the way was a much smaller gain than that achieved in February (268K revised up). The non-farm private payroll gains were 95,000, also landing far below economists' forecast of 210,000.

This result was even lower than that presented by ADP this past Wednesday, which also landed worse than Street estimates. According to ADP, 158,000 private sector jobs were gained during March, below the Street's consensus estimate calling for a gain of 197,000 jobs.

We should note that during the last 12 months the average monthly gain in non-farm employment has been 159,000, which is well below the 202,000 achieved in the comparable year-ago period, certainly not an encouraging trend. So while job creation has been taking place for the last 30 consecutive months, job additions need to ramp higher, not lower. As it stands, we calculate that the economy needs at least 119,000 jobs added monthly just to keep the employment situation constant, with normal population growth run rates; however, we believe that it is likely that workers will soon move into the labor force, lifting the unemployment rate significantly, so much more is needed to bring the unemployment rate to a normal range of 5 to 6 percent.

In essence, the unemployment rate result was not as favorable as it seemed; while it did decline 17 basis points, it was partially assisted by the fact that a large number of people threw in the towel and removed themselves from the work force. Next month if this situation reverses, that is if those not in the labor force decide to join the work force, we can certainly expect to see a strong component in the direction of a higher unemployment rate.