Economist: Job Market Is Finally Coming Out of ‘Winter Slumber’

Source: Thinkstock

Source: Thinkstock

“The job market is coming out from its deep winter slumber,” said Moody’s Analytics Chief Economist Mark Zandi, describing the results of the March private employment report compiled by his firm and payroll processor ADP. “Job gains are consistent with the pace prior to the brutal winter,” he added.

In December, January, and February, the firm’s data showed levels of job creation were far too low to dig the U.S. economy out of the crater in the labor market created by the financial crisis and Great Recession. While the Department of Labor’s jobs numbers reflect a far more positive trend line in payroll additions in February and ADP upwardly revised the month’s job growth by almost 40,000 to 178,000 in this latest report, the ability of the U.S. economy to create jobs was once again in question. Harsh temperatures plaguing much of the United States earlier in the year took most of the blame for U.S. labor market woes, and although some analysts feared structural problems were also at fault, that concern will be wiped away if hiring numbers continue to improve as ADP’s March report suggests. The payroll processor’s National Employment Report showed U.S. employers added 191,000 jobs last month.


Change in Nonfarm Private Employment

“The 191,000 U.S. private sector jobs added in March is slightly above the twelve-month average,” said ADP President and Chief Executive Officer Carlos Rodriguez. “Hopefully, this could be a sign there is more growth to come.” ADP’s employment report is based on data from businesses employing more than 21 million workers.

Even though that figure missed the 195,000 job additions expected by analysts, this pace of job creation indicates employers are confident consumer demand for their products and services will strengthen now that the colder-than-usual temperatures — which caused Americans to cut back on spending early in the year — have passed. Additional employment gains and wage growth will allow the American consumer to spend more, fueling greater economic expansion as household purchases account for approximately 70 percent of gross domestic product.

“We’re starting to see the recovery in the data that we’ve been hoping for,” Deutsche Bank Securities economist Brett Ryan told Bloomberg before the data was released. “This is going to provide policy makers and market participants alike a modicum of confidence that the data swoon over the last couple months is weather-related and not a sign of something more ominous.” Similarly, Zandi believes that “even better numbers are likely in coming months as the weather warms.”

In another encouraging sign for the health of the U.S. labor market, Zandi also noted that Mach’s job gains were broadly based across industries and business size classes. By company size, ADP data showed small business led the job gains, with firms employing between one to forty-nine workers adding 72,000 jobs to payrolls. But medium and large companies were not far behind; businesses employing between fifty and 499 added 52,000 jobs, and large corporations employing more than 500 workers added 67,000. Of course, as usual, job creation was stronger in the service-producing sector, which created 164,000 jobs, than in the goods-producing sector, which created just 28,000 new positions. Employment in construction rose by 20,000, and factories created 5,000 new jobs. Meanwhile, professional and business services added 53,000 jobs, financial services created 5,000 new jobs, and employment in trade, transportation, and utilities rose by 36,000.

ADP’s report is typically seen as a precursor to the Labor Department’s employment situation report. But “the ADP report hasn’t done a particularly good job in signaling first prints in the [Labor Department] report, overpredicting that number by 33,000 in January, and a whopping 151,000 in December,” JPMorgan Chase chief U.S. economist Michael Feroli told Bloomberg via email last month, noting that “generally the ADP revisions have an uncanny ability to make first-print misses disappear.” ADP’s initial February figure of 139,000 job additions came in well below the government’s official tally of 175,000. The more authoritative report from the Labor Department’s Bureau of Labor Statistics will be released this Friday, and analysts expect the data will show employers added 200,000 new jobs to payrolls last month.

February’s job growth of 175,000 is approximately just enough to keep pace with the growing population, and if March payroll additions jump to 200,000, employment growth will return to the average of jobs per month added from June through November of last year. Economists say that 200,000 jobs per month must be added in order to attain sustainable job growth. Factoring in population growth, economists have calculated it will still take years for the job market to return to pre-recession health, when the unemployment rate was between 4 percent and 5 percent.


Historical Trend – Change in Total Nonfarm Private Employment

Federal Reserve Chair Janet Yellen has herself acknowledged the ongoing problems in the U.S. labor market. In some ways, the job market is tougher now than in any recession,” she said in a March 31 speech in Chicago. “The numbers of people who have been trying to find work for more than six months or more than a year are much higher today than they ever were since records began decades ago.”

Despite holding interests rates near zero since late 2008 and growing the central bank’s balance sheet to $4.23 billion through bond purchases aimed at making borrowing more accessible, the Fed Chair said policy makers have not done enough to combat unemployment. As evidenced by the high numbers of underemployed Americans, record-low labor force participation, stagnant wages, and the large numbers of long-term unemployed workers, “there remains considerable slack in the economy and the labor market,” Yellen said.

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