NEW YORK — The increase in payroll employment moderated significantly in March though such may indicate more U.S. labor markets approaching capacity limits rather than a sign of weakening in labor demand, RBC Economics reported.
Payroll employment rose a smaller-than-expected 98,000 following gains of 219,000 and 216,000 in February and January, respectively. Market expectations had been for a much stronger 180,000 increase. At the margin inclement weather is some regions may have had a dampening impact on hiring.
The gain in service-producing jobs moderated to 61,000 from 125,000 in February while goods-producing employment gain dropped to 28,000 from February’s outsized 96,000 jump. Government employment rose slightly by 9,000 which reversed a 2,000 decline in February.
The separate, and more volatile, household employment survey tally indicated a more pronounced 472,000 surge in employment. With the household labor force only up 145,000, the unemployment rate sank to 4.5 percent from February’s 4.7 percent. Market expectations had been for this rate to remain unchanged at 4.7 percent.
Average hourly earnings, the main wage measure in the report, rose 2.7 percent over the past year both in March and in the first quarter. This measure has been steadily increasing from 2.1 percent in 2014, 2.3 percent in 2015 and 2.6 percent in 2016
Indications of tightening labor markets were clearly conveyed by the unemployment rate unexpectedly dropping by a significant 0.2 percentage points to 4.5 percent. As well, wage growth continues to trend higher, explained Paul Ferley, assistant chief economist.
“Though job growth may be moving toward a more moderate pace, higher wages should keep incomes rising to sustain GDP growth close to the economy’s potential rate,” he explained. “Sustained above-potential growth was a factor that returned the Fed to tightening mode late last year.
“With the economy moving ever closer to capacity, policy will be more focused on pulling back on the unneeded liquidity in the system,” he added. “This is expected to keep the central bank tightening going forward via raising Fed funds along with a shrinking of the balance sheet.
“Our forecast assumes the Fed funds rate being hiked by 25 basis points two more times this year followed by four hikes in 2018 with this official rate finishing next year at 2.50 percent,” said Ferley.
Canada’s job gains beat expectations
The run of employment gains kept going in March with this morning’s report showing 19,400 positions were added. That means 276,000 more people were working compared to a year earlier. This jibes with the strong acceleration in real GDP that started in the middle of 2016.
There were 19,000 jobs created in March and labor force rebounded sharply by 47,000
Unemployment rate increased to 6.7 percent with full-time jobs up 18,000 with a 1,000 rise in part-time jobs. In the first quarter, 139,000 full-time positions were created.
Service sector employment fell 2,000 while goods producers created 22,000 positions as manufacturers added 24,000 workers.
The participation rate recovered to 65.9 percent backed by a 0.3 percent rise in participation by prime-aged workers.\
Hours worked jumped 1.1 percent in March skating the year ago rate back into positive territory, and wage growth remains disappointing, earnings for permanent workers up only 0.9 percent from year ago.
Heading into next week’s Bank of Canada meeting this data run gives the bank a lot of think about, said Dawn Desjardins, assistant chief economist.
“Real GDP is on track to beat the bank’s forecasts for a third consecutive quarter and the unemployment rate at 6.7 percent remains below the 10-year pre-recession average, a time when the economy was considered to be at full-employment. See our assessment of current conditions here,” she said.
“To be sure, the weak wage growth suggests that there remains residual slack in the labor market,” she added. “Hours worked also remained tepid as even with March’s rebound hours stood 0.2 percent lower in the first quarter than a year earlier.
“We expect wages and hours worked will catch-up to the strong gains in employment and growth in the months ahead,” Desjardins explained. “We will watch closely to see how the Bank incorporates the data into their forecasts. The Governor’s commentary last month hinted that he thinks it will take some time before the economy will reach full employment meaning rate hikes are unlikely to be on the table anytime soon.”
SOURCE: RBC Economics press release