8 Ways To Look At The March Jobs Report

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by: Mohamed El-Erian

On the day after the U.S. military strike against Syria and in the midst of the meeting between Donald Trump and China's Xi Jinping, Friday's monthly jobs-data release is attracting less attention than usual. Yet the report on the health of the labor market in March is important for assessing the underlying strength of the economy, and it has policy implications. Here are eight main takeaways:

  1. At 98,000 new jobs, payroll gains in March were well below consensus expectations of some 180,000 and the revised February estimate of 219,000. Bad weather explains only part of this big miss, but the overall picture of the labor market is not as weak as this widely cited metric would suggest.
  2. Three-month moving average employment growth is almost 180,000 -- a solid number for this stage of a historic labor-market run that has seen more than 16 million jobs created since the depth of the global financial crisis.
  3. The signals of underlying strength are reinforced by declines in the widely watched unemployment rate (to 4.5 percent from 4.7 percent), in the less mentioned but more comprehensive U6 measure that counts more part-time and discouraged workers among the jobless (to 8.9 percent), and in part-time employment overall.
  4. Also encouraging is the 2.7 percent annual increase in wages, which was in line with consensus expectations - pointing to a gradual transition in the consumer growth engine that will benefit now from wage growth as well as job growth.
  5. Less encouraging is a labor participation rate that remains stuck at 63 percent, highlighting longstanding barriers to people who stopped looking for work but want to return to the labor market. The employment-to-population rate remains too low at 60.1 percent -- an issue that continues to hold back growth potential.
  6. Looking forward, the March jobs report warrants some caution as to how quickly the impressive surge in sentiment measures, both for the household and corporate sectors, will translate to more favorable hard data.
  7. There should now be greater pressure on Congress to move forward on the pro-growth measures advocated by the Trump administration. Also, these would need to be expanded over time beyond infrastructure spending that facilitates higher private-sector production and productivity, tax reform that stimulates growth and careful deregulation that enhances efficiency without undermining soundness and safety.
  8. The March report makes policy choices somewhat more complicated for the Federal Reserve because of the conflicting data. But it shouldn't deter the Fed from continuing to forecast two more rate hikes in 2017 after the quarter-point increase last month. Most likely, these would take place in the context of a gradual change in polices aimed at the orderly normalization of interest rates and the balance sheet; and it is one in which the Fed would continue to carefully pivot from following markets to leading them.

This post originally appeared on Bloomberg View.

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