Non-farm payrolls increased 120,000 in March

Implications:  Payroll jobs fell short of consensus expectations for March, growing 120,000. As a result, equities have temporarily slumped and Treasury securities have rallied. Investor expectations of another round of quantitative easing have increased. We think all these movements are way overdone. The context and details of Friday's report suggest nothing to worry about. The modest gain in payrolls in March follows three months where payroll gains averaged 246,000, in part due to unusually good winter weather. As a result, some payback was inevitable.  The unemployment rate dipped to 8.2% in March (versus 8.9% a year ago). Although the drop in March was in part due to a slip in the size of the labor force, that same labor force is up 1.1 million in the past twelve months. In other words, the trend decline in the jobless rate in the past year is definitely not due to fewer people looking for work. The typical duration of unemployment fell to 19.9 weeks in March, tying the shortest length since 2009. Meanwhile, the share of unemployed who voluntarily quit their prior job leaped up to 8.7%, the highest since 2008. Those workers, plus new entrants to the labor force, now make up almost 20% of the unemployed, very close to the norm in 2005-07, before the recession. This shows rising confidence in the strength of the labor market; those without jobs think they will soon get one. Total hours worked slipped 0.2% in March, but for the first quarter as a whole were up at a 3.7% annual rate, the fastest pace for any quarter since the recession. That, combined, with continued increases in wages per hour, means total wages were up at a 5.6% annual rate in Q1, more than enough to outstrip inflation, even with food and energy included. In other recent news on the job market, initial claims for unemployment insurance declined 6,000 to 357,000, the lowest since April 2008. Continuing claims for regular state benefits declined 16,000 to 3.34 million, the lowest since August 2008. 

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Posted on Monday, April 9, 2012 @ 11:27 AM

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