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March Employment Update: Growth Outlook Intact; S&P Fairly Valued

Chris Joseph, CFA profile picture
Chris Joseph, CFA


  • I updated my economic composite with data from the March BLS employment report released on Friday, April 5.
  • The gain in nonfarm payroll of 196,000 beat the consensus forecast of 175,000.
  • On a month-to-month basis, the number of temp workers fell 5,000. However, temps continued to rise year over year, providing support to the economic composite’s growth outlook.
  • In light of this year’s continued recovery in the S&P, I moved my assessment from low end of fair value to fair value.

Economic Composite

I updated my economic composite to reflect the release of the U.S. Labor Department's employment report on April 5. The report showed a rise in nonfarm employment of 196,000 in March. The number was ahead of expectations of a gain of 175,000. Preliminary numbers for the previous two months were revised slightly upward. This marked considerable improvement from the February report, when payrolls grew just 20,000.

Temp employment in March fell 5,000 from the previous month but rose 1.5% year over year. Preliminary figures for the previous two months were revised downward. Monthly comparisons have been weak this year. As a result, temp employment has been flat in the past six months. Still, year-over-year growth rates are fairly solid, averaging an increase of 1.8% in the last six months.

The trend is a little concerning. If the monthly change remains flat to down, it will eventually cause the year-over-year comparisons to turn negative. For now, I’m modeling very modest monthly gains in temp employment through the rest of the year.

Meanwhile, the temp employment number for the fourth quarter of 2018 from the American Staffing Association, which was released in mid-March, was strong. The ASA’s quarterly data, another one of the inputs of the economic composite, showed a sequential increase of 180,000 in the average number of temp workers employed per week in the quarter, for an annual increase of 2%. I was looking for a gain of just 50,000 and an annual decline of 2%. The outperformance pushed up my estimates through the rest of the year, helping to keep the composite above zero.

The flattening yield curve is also a source of concern. The composite includes a numerical “reward” for a positively sloping curve and a “penalty” for an inverted curve. So far this year, the differences in the monthly averages I use

This article was written by

Chris Joseph, CFA profile picture
Chartwell Research is published by Chris Joseph, CFA. Chris spent over seven years managing the private market investments in one of the 20 largest university endowments in the U.S. He also worked for many years in the equity research departments of leading investment banks, including five years following companies in the staffing industry. For over 15 years, Chris has been analyzing government and private sources of employment data, which form the basis for the Chartwell economic model.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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