March job numbers were disappointing. Even though the unemployment rate was unchanged and this marked 61 months of positive job growth, job gains of 126,000 was the lowest since December 2013. Though one should not overreact to data over a month’s period, we are seeing evidence of a disturbing trend. Here’s the quarterly job rates over the last four quarters:
Certainly, the last quarter of 2014 performance was strong, but the first quarter saw a decline of 39 percent and this was despite low gas prices that you would think boost consumer spending. However, that has not occurred. It is possible that a stronger U.S. dollar and Middle East turmoil might be finally filtering to U.S. employment figures. A stronger dollar makes U.S. goods relatively more expensive than foreign goods, so that would lead to lower sales and dampened expectations for job growth. Then factor in troubled spots throughout the global economy and that also diminishes outlook for U.S. exporters, who have gained greater influence over the overall economy.
So is this temporary or a precursor to further decline?
Most industries witnessed little growth, though there were some modest exceptions. Retail trade employment rose at a similar rate to last year. There are also steady gains in the health care industry. Even though there were job gains in professional and business services, its rate of increase was less than last year. However, there was not much growth in any other sectors.
Despite these concerns, there are some positive trends to note. One, the unemployment rate is falling and the labor force participation rate is starting to stabilize a bit. There has been little change in the labor force for over a year. We can see this from the Atlanta Fed graph below.
Another encouraging sign is that long-term unemployment continues to fall over the last year. Over the last year, the percentage of long-term unemployment has fallen from 35.3 percent to 29.7 percent. Due to this improvement, a broader gauge of unemployment (U-6) has fallen from 12.6 percent to 10.9 percent since March 2014.
On the other hand, there are troubling signs that appear to be on the horizon.
- Manufacturing activity is falling.
- Retail sales, excluding food, have fallen over the last couple of months.
With falling gas prices, one would think that it would loosen the pocketbook of consumers, but that has not come to fruition yet. Retail sales have fallen below expectations over the last few months, which suggests that they are not pocketing this new-found wealth back into the economy. A recent slowdown in manufacturing activity may mean that firms are not expecting robust growth this year. That is consistent with a survey of CEOs, who are predicting modest growth that will fall below the 3 percent threshold that would point to good growth.
In summary, it appears that the downside risk outweigh the upside risk, so do not be surprised if turbulence returns to the labor market.