The Employment Situation in March – Snow Daze? Fed Delays


The Bureau of Labor Statistics (BLS) reported that payroll employment expanded by a disappointing 126 thousand in March, well below expectations. Job gains in January and February were revised downward by a total of 69 thousand. The unemployment rate was unchanged at 5.5%.

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The question now is whether (weather) this is a one-off disappointment or a something more ominous. It’s tempting to blame harsh weather and assume an April rebound but that may not stand up to scrutiny. The establishment survey, the basis for the payroll employment estimates, uses the pay period that includes the 12th of the month as the reference period. Employees would have to be off work for the entire pay period to affect the payroll estimates. The BLS notes that severe weather is more likely to affect average hours, which did decline in March.

The reference period for the household survey, the basis for the unemployment rate, is typically the week that includes the 12th of the month. Employed persons not at work for weather-related reasons, even for the entire week, are still considered employed, whether they receive pay for the period or not.

The National Oceanic and Atmospheric Administration (NOAA) reports that in contrast to February when much of the US was experiencing temperatures well below normal, the second week of March (which contained the 12th) was warmer than average in most parts of the US (temp), and precipitation levels were normal or lower in most of the country, with the exception of a narrow band from east Texas to Ohio (precip). So the weakness in the payroll numbers was unlikely weather-related.

The next likely suspect is a slowing mining and extracting sector which has benefitted greatly until recently from the energy boom, compared to still struggling other goods producing sectors. While job growth in this sector has switched from gains to losses, the entire sector accounts for roughly one half of one percent of payroll employment. Job gains were 45 thousand in all of 2014 and losses were 8 thousand in March. Total employment gains in March were roughly 100 thousand below expectations.

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The slowdown in job growth was broad based with goods producing sectors shedding jobs and service sectors growing at half the pace of the fourth quarter of 2014. With no smoking gun to blame for killing labor market momentum (or proving it transitory) the abrupt slowdown in payroll growth makes the strong November and December gains look like outliers rather than the beginning of an upward trend. And the unraveling of the unemployment rate as an indicator of the health of the labor market (labor force defections) provides no comfort.

The positive inflation news reported last month notwithstanding (CPI), this labor report will give the Fed pause as it considers the timing of interest rate increases (FOMC). The weakness of this report raises the probability that the much anticipated Fed action increasing interest rates will be delayed.



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