A Closer Look at the March NFP

It looks like the U.S. jobs picture isn’t as rosy as most economists predicted, as the recent NFP report failed to meet expectations of a 207,000 increase in net hiring. Instead, the actual figure showed a mere 120,000 rise in employment, which marked the smallest increase in five months.

It’s also interesting to note that the number of jobs created in March failed to land above the 200,000 level for the first time since December last year. A quick look at the components would reveal that the slowdown in employment was partly caused by a 34,000 drop in hiring in the retail sector, which is its biggest decline since October 2009.

The good news is that the February NFP figure enjoyed a slight upward revision from 227,000 to 240,000 while the March jobless rate fell from 8.3% to 8.2%. Now, you know as well as I do that we should never take these numbers as face value. Let’s dig a little deeper and see how the labor market really fared last month.

To the untrained eye, the drop in the unemployment rate may seem like a good news. But you’ll soon realize that it’s quite the opposite once you see the declines in the participation rate and the under-employment rate.

The participation rate, which measures the number of working-age individuals in the work force, dropped from 63.9% to 63.8% last month. Meanwhile, the under-employment rate, which includes part-time workers looking for full-time work and those who want work but have given up job-hunting, fell from 14.9% to 14.5%.

What this basically tells us is that the unemployment rate didn’t drop because of jobs growth. Rather, it fell primarily because more people have left the work force out of despair. It’s practically an indication of lost hope!

Part of the weak hiring in March might be explained by a warmer-than-usual winter. Companies might have added or kept more employees on their payroll than they normally would have in previous months. After all, we did see an average growth in jobs of about 246,000 from December to February. This might’ve negatively affected the month-on-month gains in March.

We should also take note of the fact that the average worker saw shorter workweeks and earned less moolah per week last month. The average workweek dropped by 0.1 hours to 34.5, while average hourly earnings rose just 0.2% (versus February’s 0.3% increase) to $23.39.

So all in all, what does a closer look at last month’s labor market stats reveal? Just more bad news.

All the poor labor statistics only give credence to Ben Bernanke’s fears about the state of the labor market. Remember, a few weeks back, Bernanke crushed the dollar when he expressed his concerns about the sustainability of the recent progress in the labor market. He said that if we see more weakness in the economy that the Fed may have no choice but to implement additional easing measures.

The recent data also supports the downbeat outlook of other Fed members who are worried that the economic recovery may falter later in the year, just like it did in 2011.

Judging from the reaction we saw last Friday and with the threat of another round of quantitative easing haunting the markets, I think we may see some selling pressure on the U.S. dollar over the short term. Fundamentals seem to be the dominating market theme, which could mean that any weak U.S. data could lead to bearish moves for the Greenback.

Make sure to tune in regularly to both Pip Diddy’s daily roundup and my Piponomics blog for up-to-date news and developments on the state of the U.S. economy!


  • Darkdoji

    I think the quiz questions are neither here nor there. Since there are no real answers beyond the sentiment US investors indicate starting US open (later today). Even that might fluctuate going forward with several Fed speaks on tap, as contradicting hints on QE3 cause participants to waver. The current sentiment is centrist – i.e. not sure whether to worry about world growth (CNY, EUR and USD) in a season expected to see poor earnings or hope for stimulus in the near term. So if unlike me you are able to stay out of the market and wait for clearer direction you might turn out the better trader for it. I already bet the worry will overcome – but that is not a rational position given that I know the matter is not settled – so I am just another high risk trader (for technical reasons though).

    PS:Bet short the AUD @ 102957 and as of post about 2 pips in the black – not a comfortable position yet in thin market conditions (so far).

  • cyanidez

    Another golden article, thank you! You dissected the news in an easy-to-understand way, awesome work.