With job growth coming in at about half what forecasters expected, March was an undeniably disappointing month for US economic performance.
The 126,000 tally of new jobs released Friday wasn’t just a weak total, it also reflected a narrowing of gains to a smaller range of industries – with employment actually declining a bit in manufacturing, construction, and the mining sector that includes energy. Job gains for the prior two months were revised modestly downward. And the hours worked by typical employees dipped for the month – a hit to paychecks.
What was to like in the Labor Department’s report?
Not much, other than that the official US unemployment rate stayed flat at 5.5 percent.
But it’s important to keep this setback, this alternative flavor of March madness, in perspective.
Economists don’t see it as a sign of a new threat to the US or global economic recovery. If there’s a larger story here that goes beyond first-quarter weakness, it may be that the job market is just recalibrating after some months that may have been unsustainably strong.
“We view this merely as a realignment of payrolls with the true underlying pace of the economy,” writes Gregory Daco of Oxford Economics, in an analysis for clients of the Labor Department report.
Investors in the stock market didn’t panic at the job figures, even though this was the first time in 13 months that job gains came in below 200,000. The Standard & Poor’s 500 stock index was essentially flat in early afternoon trading.
In part, the muted reaction on Wall Street may signal expectations that a cool start to 2015 pushes a Federal Reserve interest-rate hike some time beyond this summer.
Here’s a closer look at some of the job market forces at play in March.
Historically, first quarters have been bad before
The first quarter was the weakest of the year in 2010 (at a 1.7 percent annualized growth rate), 2011 (at negative 1.5 percent), and 2014 (at negative 2.1 percent). Business investment tends to be soft at the start of the year, note economists at the investment firm Goldman Sachs. Bad weather becomes an added drag in some years.
Big snows in the Northeast and a labor slowdown in West Coast ports are among the reasons 2015 could follow suit – with annualized growth possibly at 1.5 percent or lower. It’s hard for jobs to grow fast in that climate.
Historically, monthly volatility is the norm
This is the first time in the new millennium that job growth has exceeded 200,000 for 12 straight months, through February. Even after adjusting for seasonal cycles, employment tends to have bumps and valleys as well as smooth patches.
Job growth may have gotten ahead of itself last year
A sobering message from the job market may be that the roaring pace of gains late last year – when employers were adding more than 300,000 jobs per month – didn't really signal much lasting momentum.
But even before Friday’s preliminary numbers from the Labor Department for March, some were warning that job gains had gotten ahead of the underlying pace of growth in the gross domestic product.
Analysis by Goldman Sachs, comparing the historical relation of GDP to jobs, predicted recently that job gains of about 200,000 per month can be expected if the economy achieves 3 percent growth for the calendar year.
Similarly, in his analysis of the job numbers for March, Mr. Daco at Oxford Economics says “jobs gains averaging just north of 200,000” would be reasonable this year.
The 126,000 figure can be viewed as balancing some months that went well above the norm.
Maybe the reality will still involve some surprises on the "up" side. The forecasting firm IHS Global Insight is predicting average gains in the months ahead ranging from 200,000 to 250,000, for example.
Anything in the 200,000 range or higher represents progress for the job market, but a faster pace would be helpful in filling the “jobs gap” that remains from the Great Recession. Many potential workers might be drawn back into the labor market by a stronger hiring climate.
And at the very least, it’s good news that financial markets and forecasters aren't rattled by the March disappointment.
The global economy has been dealing dealing with some crosswinds – from the strong US dollar and low oil prices to uncertainty about monetary and fiscal policies. But it seems to be muddling through.