The March employment report was just about as expected, but it clearly showed that the labor market is slowing:
- The monthly gain in Non-Farm Payrolls (NFP) of 236k jobs was the lowest of the post-pandemic era.
- The y/y growth rate of NFP gains has fallen from a peak of 5.2% in February 2022 to 2.7% now.
- All of the gains were in the service sector as construction lost -9k jobs and manufacturing lost -1k. Retail lost -15k jobs. As usual, leisure and hospitality led the way with a gain of +72k jobs
- Average weekly hours fell -0.3%, the fourth decline in five months, to a y/y rate of -0.9%, an indicator that businesses have a little less work for their employees.
- Wage gains on a y/y basis fell from 4.6% to 4.2%, the lowest in 22 months, and well below the 5.9% peak a year ago, easing inflationary pressures. Note however that after inflation, that 4.2% gain turns into -1.8%, meaning wage earners are still underwater.
- When the job diffusion index falls below 50, it indicates that more industries are losing jobs than gaining. The recent peak in February of 2022 was 85%, but it has made a steady decline to 60% currently.
Changes in temporary jobs usually precede changes in full-time jobs, because businesses will cut temporary employees before they cut permanent ones. The first chart below shows temporary job growth, as represented by the blue line, advanced by two months ahead of total job growth. Alternatively, you could say that overall job growth in the chart lags two months behind temporary job growth. Either way, temporary jobs are shrinking at a -4.1% y/y rate, suggesting that overall jobs may also start to shrink shortly. Note also that when temporary job growth has gone negative in the past, it has always been followed by a recession, although there isn’t a lot of historical data.
- The one upward surprise in the report was the increase in the labor force participation rate from 62.5% to 62.6%, but that is still well below the 63.3% just before the pandemic.
- While the unemployment rate ticked down to 3.5%, it has floated between 3.4% and 3.6% for five months.
- The Fed is still on for another 25 bps hike in May, but hopefully, that will quite likely be the end. Next Tuesday’s Consumer Price Index (CPI) report will be the last major piece of inflation data that the Fed will see before that meeting.
The employment report was very much in line with other recent labor market data.
Job openings fell a sharp -6% m/m in February (after -6% in January too). The number of openings is now below 10 million for the first time since May of 2021. Since the recent peaks of early last year, openings have fallen at an annualized rate of -18.9%, hirings are down -9.4%, and the critical gap between the two which represents the imbalance in the labor market has shrunk by a huge -33.1%. Similarly job quits have shrunken by 13% annualized.