March Jobs Report: Employment Growth Slows; Wage Growth Rises

Apr 6, 2018, 14:30 PM by Nikhil Mohan
  • Headline: U.S. employment rose by 103,000 jobs in March, which was well below the consensus expectation of 193,000. The unemployment rate remained unchanged at 4.1% for the sixth consecutive month. While monthly employment changes are volatile, March employment growth was well below that of February. Further reflecting the volatility in these monthly numbers, January’s job growth was revised downward, while February’s was revised upward. On net, the revisions showed employment gains during January and February at 50,000 fewer jobs than was initially reported. The labor force participation rate remained mostly unchanged at 62.9%.
  • Executive Summary: Monthly job growth has averaged a relatively strong 202,000 for the past three months, but remains volatile, as do revisions. Average hourly earnings rose slightly in March. Wages have risen by 2.7% this year. In these results, there is no reason to think the Fed might change course in its normalization of monetary policy. Markets have already priced in two additional rate increases this year. The Fed could consider a third increase if wage growth remains above 2.5%, given uneven productivity growth.
  • Wage Inflation: Annualized wage growth was 2.9% in January, 2.6% in February and 2.7% in March. While wage growth is substantially slower today than it was prior to the global financial crisis, it has increased from post-crisis lows. The 10-year Treasury has fallen slightly since last month—by about 10 basis points (bps). It remains nearly 45 bps higher than it was this time last year. Given that monetary policy is on a path of normalization, by year-end, the 10-year Treasury is more likely to be slightly above 3% than below it.
  • Job Growth Outlook: Without a sharp increase in labor force participation, job growth likely will moderate in coming months, as employers find it difficult to fill skilled positions from the current workforce. Recent tax reform is expected to increase the deficit, further placing upward pressure on interest rates. But it also is likely to provide a boost to the job market, potentially extending the current cycle. Nevertheless, gains will likely be modest given that the economy is operating near capacity. While market volatility has risen slightly, a trade dispute between the U.S. and China remains focused on minor import tariffs.
  • CRE Sector Employment:
    • Construction: Employment in construction was little changed, after adding a solid 61,000 jobs in February.
    • Industrial: Manufacturing payrolls rose by 22,000 in March. The manufacturing sector has added 232,000 jobs over the past year, with the durable goods component accounting for three-quarters of the increase.
    • Retail: Retail employment remained largely unchanged after February’s strong growth.
    • Office: Strength in professional and business services continues apace. Employment in this sector rose by 33,000 in March and has risen by 502,000 in the past year.


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