The March jobs report seems to be consistent with ongoing strength in the labor market and growth of real GDP that is well above trend. As such, we see it as fully consistent with our call of four rate hikes this year.
Payroll gains slowed to 103K in March following a 326K gain in February. Gains in January and February were revised down a total of 50K, on the net. The March print was well below the consensus, but it’s easy to look through. Payroll gains have averaged 202K, 211K, and 188K over the last three, six, and 12 months, respectively. This report doesn’t challenge our basic view that the labor market conditions remain solid. In addition, total hours worked increased at a 2.0% annualized pace in 2018:Q1 relative to the previous quarter—consistent with there being solid momentum in real economic activity, notwithstanding an apparent deceleration in the spending data for Q1. Average hourly earnings posted a solid 0.3% gain in March, and the 12-month rate ticked up to 2.7%—not much news there.
The household survey side of the report, particularly the unemployment rate and participation rate, has been raising more questions. The participation rate edged down a tenth following the previous month’s three-tenths increase, and the unemployment rate remained at 4.1%, where it’s been for six consecutive months. We’ve been surprised by the stability of the unemployment rate over this period, considering the strength of real GDP growth and job gains. However, we continue to expect that a robust pace of job gains will result in a resumed decline in the unemployment rate. The question is what that decline will look like, given that the participation rate has continued to move sideways even as the population ages, a secular source of downward pressure.