Let’s take a look at the economy before this week gets sucked into the black hole of tariffs and trade wars.
As you’ll remember when last we left the U.S. economy–on Friday morning–it had just reported a disappointing addition to 103,000 net new jobs for March. Economists surveyed by Bloomberg had been looking for 183,000. The official unemployment rate stayed at 4.1%, where it’s been stuck for six straight months. (Economists were expecting unemployment to drop to 4.0%.) Average hourly earnings, in a piece of good news, climbed 0.3% from January and 2.7% year over year. That matched estimates.
The figure seemed especially disappointing compared to the 326,000 jobs added in February. (That was an upward revision from the initial report of 313,000).
Yet even the March disappointment left the three-month average gain at 202,000. That’s better than the 182,000 average in 2017.
Pealing away as best as I can the effects of renewed fears about a China/U.S. trade war that sent the market plunging on Friday, the reaction on Wall Street was muted pleasure. The February jobs number had been so strong that it had raised fears that the economy had blown out its controls and was headed to a runaway that would force the Federal Reserve to raise rates more aggressively than expected. The lower than expected job gains for March removed that fear and left the market looking for a June 13 interest rate. (The odds of an interest rate increase at that meeting of the Fed’s Open Market Committee stood at 80.3% today, according to the CME FedWatch tool.)
I’d also peg part of the positive response to the disappointing number to the clarity of the explanation for what happened in February and March. Weather. In February unusually mild weather led to a surge in hiring in the construction sector–65,000 jobs. In March weather returned to a more normal pattern and the sector lost 15,000 jobs. Hiring in the leisure and hospitality sector, which is another weather-sensitive sector–slowed with jobs up just 5,000 after a gain 23,000 in February.
Taking all those factors into consideration there’s probably nothing to worry about in the March number. The drop from February is a reflection of a weather adding so many jobs in that month and then taking some of those gains away in March. The the moderation in job growth means that Fed isn’t under pressure to go super aggressive. Of course, the month numbers bear watching just in case the March drop is a sign of some turning point in economic growth.
Which is essentially the tack that Federal Reserve chair Jerome Powell took in a speech on Friday. “The absence of a sharper acceleration in wages suggests that the labor market is not excessively tight,” Powell said. “I will be looking for an additional pickup in wage growth as the labor market strengthens further.” In other words, at this point, the Fed is staying the course.