Friday, April 6, 2012

March Madness in Job Reports?

Timothy R. Homan of Bloomberg reports, Employers Added 120,000 Jobs in March, Fewest in Five Months:

Employers in the U.S. added fewer jobs than forecast in March, underscoring Federal Reserve Chairman Ben S. Bernanke’s concern that recent gains may not be sustained without a pickup in growth.

The 120,000 increase in payrolls, the fewest in five months, followed a revised 240,000 gain in February that was bigger than first estimated, Labor Department figures showed today in Washington. The March increase was less than the most pessimistic forecast in a Bloomberg News survey in which the median estimate called for a 205,000 rise. Unemployment fell to 8.2 percent, the lowest since January 2009, from 8.3 percent.

Faster employment growth that leads to bigger wage gains is necessary to propel consumer spending that accounts for about 70 percent of the economy. Today’s data also showed Americans worked fewer hours and earned less on average per week, helping explain why Fed policy makers say interest rates may need to stay low at least through late 2014.

“We see a lack of sustainability in terms of strong job growth,” Tony Crescenzi, a strategist at Pacific Investment Management Co. in Newport Beach, California, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “This is still not strong enough to create escape velocity, which is to say an economy strong enough to make it on its own without additional monetary stimulus from the Federal Reserve.”

Stock-index futures declined after the figures, with the contract on the Standard & Poor’s 500 Index expiring in June falling 1 percent to 1,376.3 at 8:51 a.m. in New York. The yield on the benchmark 10-year Treasury note fell to 2.08 percent from 2.18 percent.

Payroll Estimates

Payroll estimates from 80 economists in the Bloomberg survey ranged from increases of 175,000 to 250,000 after an initially estimated 227,000 gain the prior month. Revisions added a total of 4,000 jobs to payrolls in January and February.

The March data showed a 34,000 decrease in retail employment, the biggest decline since October 2009.

The unemployment rate, derived from a separate survey of households, was forecast to hold at 8.3 percent, according to the survey median.

The jobless rate dropped as unemployed workers stopped looking for work and left the labor force. The participation rate, which indicates the share of working-age people in the labor force, fell to 63.8 percent from 63.9 percent.

Jobs and Obama

While a 0.9 percentage-point drop in unemployment since August may underpin President Barack Obama’s standing leading up to the vote in November, only one president since World War II - - Ronald Reagan -- has been re-elected with a jobless rate above 6 percent. Reagan won a second term in 1984 with 7.2 percent unemployment in the month of the election, after the rate had fallen almost three percentage points in the previous 18 months.

Private payrolls, which exclude government agencies, rose 121,000 in March after a gain of 233,000 the prior month. They were projected to climb by 215,000. Manufacturing payrolls increased by 37,000 after a 31,000 gain.

Sustained auto sales are prompting Ford Motor Co. (F), the second-biggest U.S. automaker, to bring in more workers. The Dearborn, Michigan-based manufacturer boosted its 2012 sales forecast to 14.5 million to 15 million vehicles from a previous projection of 13.5 million to 14.5 million.

“We’ve already announced some shift increases, some adds in terms of shifts this year,” Erich Merkle, sales analyst at Ford, said April 3 on a conference call with analysts. “So, certainly we’ll be adding some people to fill those shifts.”

Service Providers

Employment at service-providers increased 89,000 after a 211,000 gain in February. Professional and business service payrolls rose 31,000 last month, even as temporary hiring declined 7,500.

“We see modest growth inside the U.S. and demand for labor,” Carl Camden, president and chief executive officer of Kelly Services Inc. (KELYA), a Troy, Michigan-based staffing agency, said March 12 during a conference. The expansion is “a nice steady, not robust, not rock-and-roll, but a steady recovery, capable of producing a steady stream of jobs.”

At the Western Area Career and Technology Center in Canonsburg, Pennsylvania, about 25 miles southwest of Pittsburgh, the job placement rate is 94 percent.

Some companies in the region, home to an energy boom related to shale gas drilling, are starting to compete for workers, Joseph Iannetti, the school’s director said April 4. Enrollment at the campus in Canonsburg, typically less than 400 students, is 430 this year, he said.

Demand for Skills

“We’re about to go into a really nice labor shortage here,” he said. “We’re seeing increasing demand for people with skill.”

Matt Stuckey, 42, sought work for several months in 2011. In February, the former U.S. Marine officer became a marketing director for the United Services Automobile Association, a San Antonio, Texas-based provider of financial services to military personnel.

“During the fourth quarter of last year it was very quiet,” he said in a March 27 telephone interview. “Then at the beginning of the year the job market just turned on.”

The Commerce Department last week said the economy expanded at a 3 percent annual pace in the fourth quarter after a 1.8 percent rate in the prior three months. Gross domestic product grew at a 2 percent pace in the first quarter, according to the median estimate in a Bloomberg survey of economists last month.

Construction Jobs

Today’s report also showed construction companies reduced payrolls by 7,000 workers last month after a 6,000 decrease. Government payrolls fell 1,000 in March.

Average weekly earnings fell to $806.96 in March from $807.56, today’s report showed. The average work week for all workers decreased to 34.5 hours from 34.6.

Wage increases are needed to help Americans weather gasoline prices that have increased by 66 cents this year through April 4, to $3.94 a gallon, according to data from AAA, the nation’s largest auto club.

The so-called underemployment rate, which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking, decreased to 14.5 percent from 14.9 percent.

Bernanke, in a speech to economists on March 26, said the employment gains have been a “welcome development. Still, conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks.”

“We cannot yet be sure that the recent pace of improvement in the labor market will be sustained,” Bernanke said, adding he was particularly concerned about the number people out of work for six months or longer.

The report also showed a decrease in long-term unemployed Americans. The number of people unemployed for 27 weeks or more eased as a percentage of all jobless, to 42.5 percent from 42.6 percent.

There is no doubt this is a weak jobs report, prompting Daniel Gross, editor at Yahoo! Finance, to ask whether this is the beginning of a disappointing trend:

It's a good thing the stock market isn't open Friday. If it were, the disappointing March employment report, a rare piece of negative economic news this spring, would likely have caused stocks to nosedive. As it was, U.S. stock futures (which were open) slipped, the dollar is falling and Treasury prices are spiking on the report.

The Bureau of Labor Statistics said the U.S. economy added only 120,000 payroll jobs in March, a sharp decline from recent jobs growth. The unemployment rate slipped to 8.2 percent from 8.3 percent in February, but that's largely because the workforce declined. In short, this is the type of report that is more typical of an economy beginning to emerge from recession than one that has been growing for nearly three years.

The addition of 120,000 jobs represents the 15th straight month in which jobs were added. Compared with March 2011, there were 1.9 million more payroll jobs in the U.S. in March 2012. But this represents a sharp slowdown from the pace of job creation. In each of the previous three months, the economy had added more than 200,000 positions. As is typical, the Bureau of Labor Statistics also revised the job creation for previously reported months. The January figure was revised from a gain of 284,000 to a gain of 275,000, while the February figure was revised up from 227,000 jobs created to 240,000. Looking back, BLS discovered an extra 4,000 jobs that it hadn't detected last month — a negligible figure.

The unemployment rate continued its decline, falling from 8.3 percent in February to 8.2 percent in March. But that's not necessarily good news. BLS creates its jobs metrics through two surveys. In the establishment survey, it calls up companies and asks them how many people they employ. This survey produces the payroll jobs figure. In the household survey, it calls up people at home and asks them about their work situation — whether they're working, whether they are looking for work, or whether they have stopped looking and are no longer in the labor force. The results of this survey produce the unemployment rate. And in March, the labor force actually shrank by 164,000. The labor force participation rate fell from 63.9 percent in February to 63.8 percent in March. That's why the unemployment rate fell.

Where were jobs created in March? Manufacturing had a strong month, adding 37,000 positions. Gains were also seen in professional and business services (31,000), health care (26,000), and food services and drinking establishments (37,000). There was significant weakness in retail, which lost 34,000 positions in March. Average hourly wages bumped up a bit, but because the average number of hours worked fell in the month, average weekly wages fell as well.

And in March, as it has for the last two years, what I've dubbed the "conservative recovery" continued. For much of the past two years, the private sector has consistently added jobs while the public sector — federal, state and local government — has consistently cut them. That trend continues in March, though there are signs that austerity's effect on public sector jobs is waning. In March, government reduced employment by 1,000. Since May 2010, government employment has fallen by one million while the private sector has added 3.7 million jobs.

All in all, this was a disappointing report that was at odds with the prevailing data flow. Other labor market indicators have been trending in a more positive direction. Weekly first time unemployment claims are at a four-year low. In March, layoff announcements fell sharply from the previous month. At the end of January, there were 3.46 million job openings in the U.S., up 21 percent from the number of openings in January 2011. Ultimately, however, the monthly payroll jobs figure is the one that matters most — for the economy at large, and for the politicians whose electoral success will depend in large measure on the payroll jobs figures for the next several months. We'll have to wait 30 days to see if March's report was an anomaly or the beginning of a new, disappointing trend.

I happen to think that March's report was an anomaly. It's been occurring quite frequently in the last few years where you see jobs dip in the spring only to bounce back after, a point highlighted by Catherine Rampell of the NYT's Economix blog in her preview of the jobs report:

We’ve had our hearts broken by the spring payroll numbers before, of course. As the chart above shows, in each of the last two years job growth started out relatively strong and then drooped in the second quarter, finally recovering at the end of the year.

Also, Dr. Thomas “Danny” Boston, Professor of Economics in the School of Economics at Georgia Tech, appeared on CNN and commented that while labor force participation shrank, so did the percentage of discouraged workers, a discrepancy which simply doesn't add up, suggesting this report is an anomaly.

Interestingly, in Canada, the opposite 'anomaly' occurred yesterday as the Canadian job market roared back and employment jumped by a whopping 82,000:

The West may still be best, but Canada's blowout job growth this March was primarily a story of strength in Central Canada.

A resurgent Ontario and Quebec combined to create 82,500 jobs in March, even higher than the national net total of 82,300, which was brought lower by job losses in Atlantic Canada, according to Statistics Canada.

And while Alberta and B.C. still lead the country in employment gains over the past 12 months, Ontario comes in a surprising third place, said BMO Capital Markets deputy chief economist Douglas Porter.

In March alone, Ontario - home along with Quebec to the country's manufacturing heartland - led all national job creation, posting gains of 46,100 to the employment rolls.

That drove Ontario's unemployment rate down 0.2 percentage points to 7.4 per cent, the lowest level in three years, Statistics Canada said in its report, released Thursday.

And like the national job gains, Ontario's were concentrated in full-time jobs - whose higher wages and secure employment bolster the economy through stronger and sustained consumer spending power.

"It certainly flies in the face of all the gloom and doom about the Ontario economy these days,"said Porter.

Equally for Quebec, where purported job losses of recent months had become a source of debate and acrimony, March came in like a lion, adding 36,400 jobs, which pushed the unemployment rate down a startling 0.5 percentage points, to 7.9 per cent.

Thursday's report, which sent the national unemployment rate to 7.2 per cent from 7.4 per cent in February and heralded the greatest monthly job creation since September 2008, was widely heralded as a positive sign for the Canadian economy.

"The underlying details of the employment report were extremely positive, with gains being broad-based across sectors and industries," said Sonya Gulati at TDEconomics.

To a large extent though, the March madness was simply of job statistics aligning themselves with economic reality, said Craig Alexander, chief economist at TDEconomics.

With the economy growing at about two per cent it should have been creating about 20,000 to 25,000 jobs a month, Alexander said.

So considering there was no reported job creation in January and February, the March data - averaged over three months - shows a gain in line with economic growth of 27,000.

"I don't think the labour market was at all as weak as it was being depicted,"said Alexander.

"These numbers are just playing catch-up."

Many economists cautioned that the March advance was unlikely to be repeated in the months ahead.

And while the Canadian dollar got an initial bounce, gains were pared later in the session.

More likely, the economy will continue to post modest job gains going ahead, as the strengthening private sector takes the baton from a weakening public sector, said Alexander.

Clearly, Alexander said, March gains of 32,000 in health care and social assistance, and 20,900 in the public sector, won't be repeated in the months ahead, given the fiscal austerity contained in recent federal and provincial budgets and Ottawa's aim to lay off 19,200 civil servants over the next three years.

But as Porter points out, the recent month's data shows the transition to private sector gathering steam.

Manufacturing added 11,800 jobs during the month, spurred on by stellar vehicle sales south of the border and production gains in southern Ontario's auto sector. In fact, manufacturing added 16,500 jobs in Ontario and 6,100 jobs in Quebec before losses in other provinces brought down the national total.

Further strength can be found in the participation rate, said Alexander. A total of 52,500 Canadians returned to the job market in March.

The odd surge in employment had some leading Canadian economists losing faith in monthly job numbers:

Forgive me for raining on this parade, but Canada's wonderfully strong surge of job creation just reported for March probably wasn't real.

This observation isn't based on any secret inside information; just on the sheer implausibility of this and other recent employment numbers from Statistics Canada's Labour Force Survey.

The extreme volatility of reported employment gains has become so worrisome to people who depend on them as an important guide to policy for governments, businesses and investors that the National Bank's chief economist, Stéfane Marion, is calling for an investigation by Statistics Canada.

Marion notes that since the agency showed a disastrous - and highly unlikely - loss of employment in Quebec late last year, he has spent months reassuring clients, including foreign investors, that the province's economy isn't really cratering:

"I just returned from a marketing tour of the U.S. and people were questioning me about the outlook for Quebec and the implications of all those job losses."

Marion is not alone in his concern about the reliability of these numbers.

A number of other leading economists have made it clear that they just don't have much faith in the monthly figures produced by the Labour Force Survey.

For example, if the official numbers were to be believed, last month witnessed a tidal wave of jobs - 82,300 of them - right after a seven-month drought when Canada averaged what Capital Economics' chief North American economist Paul Ashworth calls "a pathetic 14,000 additional jobs," averaging 2,000 per month.

It's hard to believe that things were really as bad as that in an economy that has grown at a reasonably steady clip over this whole period. And it's equally hard to believe in the huge job bonanza for March.

Warm weather might have given employment a modest nudge, but nothing else happened to speed up growth so hugely.

"Do you really think March was the best month in three and a half years? Not likely." said economist Robert Kavcic at BMO Capital Markets.

It's more probable, analysts say, that employment gains have been fairly steady at the modest pace implied by other economic indicators.

If you average the official numbers over the entire past year, mixing the March spike with the earlier stagnation, the result is 16,400 jobs per month, which is plausible.

This implies the official numbers could be about right for the whole period, but only after underestimating employment growth for months, then overestimating wildly in March. That isn't very reassuring to those who rely on each month's job number in making business decisions.

Even more bizarre are the figures for Quebec, where the official survey said the fourth quarter of 2011 brought the province's most catastrophic job loss in three decades, unequalled since the severe recession of early 1980s. This even though other indicators showed steady growth in Quebec's economy.

Now this same official survey says Quebec roared ahead to create more than half the new jobs in Canada during the first quarter of 2012, nearly all of them in March. But just as there was nothing to suggest any collapse late last year, there's no sign of a sudden boom this year.

The pattern of employment reports for Quebec, with a savage meltdown followed by a sharp recovery, all within six months, "clearly shows that almost all of the fourth quarter drop in jobs was an anomaly. What it did signify is that the job market in Quebec was softening late last year, not nosediving," says Philip Cross, who recently retired as the chief economic analyst at Statistics Canada.

Cross, now an economic consultant, doesn't interpret this as lack of competence on the part of those who run the Labour Force Survey, since results from this kind of household survey are inherently volatile. On the other hand, he does believe that the range of error in LFS results is larger than it acknowledges.

And that's exactly the kind of issue that the National Bank's chief economist, Stèfane Marion, would like to see investigated openly by Statistics Canada.

If its official job survey can't be made more reliable, at least those who produce it can be more transparent about its flaws, which could help to reduce the harmful impact of big swings in the numbers. Sadly, transparency has been in short supply.

Like other economists who say they asked for more information, Marion found himself stonewalled by officials at the federal agency, who would tell him only that they stood by their data.

Unfortunately for Marion and others, they didn't have the luxury of ignoring the numbers, no matter how flawed they seem. "You have to take this seriously," he said. "It's too important a data point to ignore.

I don't know what caused this 'March madness' in the U.S. and Canadian jobs reports but rest assured, going forward, the Canadian economy is one housing downturn away from imploding while the U.S. labor market will get back on track as job creation picks up steam.

And will the markets tank on this latest disappointing news when they re-open on Monday? There will likely be a dip but traders will buy into it, discounting this latest jobs report and looking well past it.

Below, John Silvia, chief economist at Wells Fargo Securities LLC, talks about the March U.S. jobs report, Federal Reserve policy and outlook for the U.S. economy. Silvia speaks with Betty Liu on Bloomberg Television's "Jobs in Focus" special report. Peter Cook, Michael McKee and Matthew Dowd also speak. Silvia and others want more stimulus but I don't see it happening.

Also, John Podesta, former White House chief of staff for President Bill Clinton, talks about the U.S. March employment report and President Barack Obama's efforts to boost the jobs market. Podesta speaks with Betty Liu and Peter Cook on Bloomberg Television's "Jobs in Focus" special report.