Silver Linings in the Jobs Report

04/06/2012 11:44 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

The disappointing March payrolls tally isn’t as bad as it seems, writes senior editor Igor Greenwald.

Uh oh. Good Friday wasn’t very good at all to investors hoping for strong job growth to boost the US economy and stock market.

March non-farm payrolls rose by 120,000, 40% short of the consensus anticipating the fourth straight monthly gain of at least 200,000 jobs.

With the stock market closed, futures traders had a 45-minute window to act, and didn’t dawdle: By the time trading closed, Dow futures had been discounted 120 points in anticipation of a broad sell-off on Monday.

Taken at face value, the payrolls shortfall bore out many of the recent qualms about the 2012 recovery. As Federal Reserve Chairman Ben Bernanke cautioned just last week, the modest rate of economic growth might not prove strong enough to sustain enthusiastic hiring.

Rising energy prices are bound to further pinch that rate, as well as the recent gains in consumer spending. The return of financial strains in Europe as the continent bogs down in recession has only added to the unease.

Throw in the stock market’s handsome gains year-to-date and concerns that corporate profitability has peaked, and one wonders exactly how many brave souls will buy an early Monday plunge, should this morning’s bearish mood persist.

So here’s a reality check. The economy may or may not be slowing down, but it’s probably unwise to decide one way or the other based on a single number as volatile and statistically massaged as the monthly payroll report. It was only on Thursday that we learned that jobless claims slipped to a four-year low, while many of the big retail chains reported surprisingly robust March sales.

Auto sales are accelerating, and while the housing market remains far from healthy, there are signs that it’s coming around. Consumer confidence boosted by improved job security has clearly helped.

On that score, the dip of the unemployment rate to a three-year low of 8.2% will only help, even if that came courtesy of people exiting the labor force.

In fact, even as the Labor Department was reporting the disappointing payroll tally for March, it was upgrading February’s gain from 227,000 to 240,000, suggesting that the economy rolled into March with plenty of momentum. The retail sales and jobless claims suggest a lot of that impetus is still with us.

The payroll number might have been skewed by seasonal adjustments. For example, construction payrolls rose 96,000 on an unadjusted basis, but fell 7,000 in adjusted terms because building tends to ramp up in the springtime as the weather warms. If some of that ramp-up was pulled forward into January and February this year because of a mild winter, then the March decline shouldn’t be worrisome.

Even more glaringly, the reported seasonally adjusted loss of nearly 34,000 retail jobs is at odds with the upbeat news from the major chains. It certainly doesn’t figure to start a trend. Absent seasonal adjustments, retail added 25,000 jobs.

A few more silver linings from Friday’s admittedly cloudy job numbers:

  • The underemployment rate, which counts part-timers unable to find full-time work, as well as people who want to work but have given up looking, fell from 14.9% to 14.5%.
  • Manufacturing added 37,000 jobs, enjoying its fourth straight good month.
  • Professional and business services added 31,000 workers, but that was still the lowest number since June and far below trend, holding out the hope for a bounce in the coming months.
  • The household employment survey used to calculate the jobless rate, and said to be more reliable at economic turning points, showed a seasonally-adjusted loss of 31,000 jobs in March, but a gain of 728,000 prior to the seasonal adjustments. And with or without adjustments, the increase over the year’s first three months has been the biggest in 12 years, based on the household data.

The job numbers should remind all the rate-hike advocates out there that the economy is not out of the woods. But they’re hardly reason to panic.

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