The US economy continues to generate jobs at a seemingly relentless pace as payrolls grew by a much better than expected 303k in March. The upside surprise was notable, yet in line with the labor market’s repeated outperformance of expectations in recent months. What was not in line with recent trends was that this report was not accompanied by a downside revision to prior months; rather, there was a small upward revision. This “broke the pattern” of revisions that had prevailed over the past year+, namely one large positive revision followed by three large negative ones. It remains to be seen if revisions become more random going forward (as they should be), but this makes this report even stronger than we anticipated.
There was nothing in the industry distribution that really stood out. Compositionally, this was very similar to the February report, with reasonably broad job gains across industries and the government continuing to play a big role. Private payrolls grew 232k and the government added 71k. Healthcare and leisure/hospitality accounted for about two thirds of the 190k private service sector jobs created in March. In the household survey, employment increased by 498k, and unemployment declined by 29k, raising the labor force by 469k and lifting the participation rate by two tenths to 62.7%. The unemployment rate dipped a tenth to 3.8% but the underemployment rate was steady at 7.3%.
After a compositional-driven surge in January and a corrective relapse in February, wage growth returned to more typical levels. Total average hourly earnings (AHE) grew 0.3% m/m, in line with the 2023 average. AHE for production and non- supervisory employees grew just 0.2% m/m, the lowest since August 2023 and, before that, January 2021. Both measures of wage inflation moderated further to 4.1% y/y and 4.2% y/y, respectively. Both mark the lowest levels since June 2021.
The fact that wage disinflation continues despite the robust pace of job creation we’ve seen lately underscores the idea that competition for workers has eased considerably. The dynamic is well aligned with signals from the NFIB survey showing that hiring intentions and the share of small businesses saying that the inability to find quality labor is their biggest problem have eased dramatically (Figure 1, page 1). It is less well aligned with still elevated job openings (more on that below), so the various labor market data sets continue to send contradictory messages. Aggregate hours jumped 0.5% m/m; in conjunction with pay increases, implying a solid month for labor income.
The Jobs Opening and Labor Turnover Survey (JOLTS) data has long told a story of a gently normalizing labor market, though one in which labor demand continues to exceed labor supply. There were 8.756 million open positions in February, little changed from January. This is down markedly from over 12 million in March 2022, but still about 1.5 million above 2019 levels. At the same time, both the hire rate and the quits rate have now dipped below levels prevailing in 2018-19, suggesting a little more softness than openings alone imply.
Once we move beyond the headlines, the data is replete with contradictions. We have long highlighted how steady declines in openings at larger firms (50+ employees) contrast with persistently elevated openings at sub-50 employees firms. But there is a growing divergence even within the sub-50 employee universe, with openings at firms with 1-9 employees hovering near record highs while openings at firms with 10-49 employees are almost back to pre-Covid levels. One struggles to find an adequate explanation for such contrasting behavior at similarly sized firms. Even if small firms may have shrunk further in recent years, perhaps falling below the 10-person threshold and boosting openings in the 1-9 segment, it is unlikely that this can explain the difference, especially since the 10-49 bucket should then also benefit from some entrants from the tier immediately above it.
This is not the only blatant oddity. We are also struck by the renewed upturn in healthcare and social assistance job openings, as well as huge volatility in the financial activities segment.
The manufacturing ISM came in a bit stronger than expected in March, while the non-manufacturing ISM was a little weaker than expected. Neither should be made too much of. Rather, we see both confirming trends already in place: a gentle bottoming out of manufacturing activity following more than a year of contraction, and a gentle downtrend in non-manufacturing activity as consumer demand normalizes after the initial re-opening burst higher. The manufacturing ISM rose 2.5 points to 50.3—the first expansionary reading since late 2022—as production jumped.
However, that jump in production follows a weak reading the month before, so we doubt that the underlying improvement was quite as robust. Indeed, employment continued to contract, and pricing metrics were steady. On the non-manufacturing side, the headline index retreated 1.2 points to 51.4, but this was only a three-month low. At odds with this was the further uptick in the business activity metric, which improved incrementally to 57.4. Employment contracted again, however. The price metric drew most attention as it dipped to a four-year low of 53.4, but we would caution against reading too much into this. Instead, this pullback should probably be best seen as a pullback following the January surge in the price metric. If, as we suspect, there is an element of start-of-year price hikes reflected in this data, that showed up in January, faded in February, and disappeared by March. Still, perhaps an encouraging signal for the next inflation report.