March Employment Report Points to Speedup, But Extent Not Clear

The March Employment Report adds to evidence that economic growth will speed up in Q219.  There is still question about the extent of the speedup.  The Report should not shift the Fed from its "patient" waiting.

The clearest evidence of a speedup is in Total Hours Worked.  They jumped as a result of the bounceback in Payrolls and Average Workweek.  They stand 0.8% (annualized) above the Q119 average, representing a moderate take-off point for Q219.  If they increase m/m near trend over the quarter, their Q219 average would have risen 2.5% (q/q, saar).   Adding productivity growth, this would point to 3.0-3.5% Q219 Real GDP Growth.

However, the relatively high-productivity sectors -- manufacturing, construction and mining -- did not bounce back strongly in March.   Jobs fell in manufacturing and did not fully recover from the February decline in the other two.  Either bad weather or the drag from tighter monetary policy/trade war continued to weigh on these sectors.  If weather was to blame, then there could be a large snapback in Q219.  But, if the more fundamental factors remained in play, some drag could persist into the Spring.   Surveys of manufacturers and housing-related data are important to watch in the next couple of months.

While Payrolls bounced back from February, the pace remained subdued.  At +196k, the m/m gain was only slightly above the +180k Q119 average and remained below the +223k 2018 m/m average.  The steady 3.8% Unemployment Rate resulted in an uptick in the Q119 average Unemployment Rate to 3.9% from 3.8% in Q418, confirming a softening in the labor market in Q119.

Wage inflation pulled back to 0.1% m/m from the high 0.4% in February.   While calendar considerations pointed to 0.3% m/m in both months, composition shifts in Payrolls likely were responsible for the m/m swings.  The y/y fell to 3.2% from 3.4%, but is still slightly on the high side.