Was the March Employment Report Strong or Not?

Although the markets viewed the March Employment Report as strong, in fact it was more consistent with a continuation of modest economic growth.  This kind of macro background should be somewhat supportive of Treasuries and stocks and somewhat negative for the dollar.  It should allow the Fed to hold off from hiking rates until after the elections.

A.  A full breakdown of the March Employment Report raises some question about its strength.

1.  The 215k m/m increase in March Payrolls was slightly below the prior 3-month (+228k) and 2015 averages (+229k). 

2.   In another soft sign, the Nonfarm Workweek stayed at a low 34.4 Hours for the second month in a row (versus 34.5 Hours in 2015) -- suggesting either that companies reacted to softening demand by having their employees work shorter hours or that companies are shifting to part-time from full-time workers.  Part-time workers for Economic Reasons rose for the second month in a row in March, according to the Household Survey, providing some evidence for the latter possibility (in reaction to higher minimum wages?).

3.  With the Nonfarm Workweek flat m/m, Total Hours Worked (THW) rose only modestly m/m, offsetting the decline in February.  THW rose 1.8% (q/q, saar) in Q116, about the same as the +1.7% in Q415.   Both gains were below the 2.2% pace seen over the first 3 quarters of 2015.    And, they suggest Q116 Real GDP Growth stayed below 2.0% in Q116 (the Atlanta Fed's GDP Model currently projects +0.7%, q/q saar).   Real GDP Growth was 1.4% in Q415 and 2.2% over the first 3 quarters of 2015.

4.   Most commentators viewed the uptick in the March Unemployment Rate to 5.0% as a positive response to improving labor market conditions -- people began to look for jobs after having dropped out of the labor force in despair earlier.   The commentators focused on the uptick in the participation rate (labor force as a percent of population).   However, there is always a question whether m/m changes in Labor Force or Civilian Employment represent macro changes such as this or just the biases of the small Household sample for the month.   These biases cancel out in the calculation of the Unemployment Rate.   So, the uptick in the Rate could have resulted from the economy growing below trend. 

B.  Early evidence regarding Q216 Real GDP Growth suggests a modest pickup at best:

          a.  The ECRI Leading Index continues to climb sharply, pointing to a speedup in Q2 GDP Growth.  

         b.  But, Total Hours Worked in March equaled their Q116 average -- not a strong take-off point.
        
C.  The composition of the +215k m/m increase in March Payrolls provides some macro evidence for several sectors:

1.  The 37k increase in Construction Jobs underscored that this sector -- particularly residential -- has become a driver of the expansion. 

2.  The 48k jump in Retail Jobs is surprising, given the modest gains seen in Retail Sales and the growth of buying over the internet.  But, it highlights the risk that upcoming Retail Sales reports should strengthen.

3.  The 37k jump in Health Care Services Jobs shows this sector to be strengthening, as more people take advantage of ObamaCare.   Anecdotal evidence suggests that many of these jobs are back-office and involve processing insurance claims.