Goldman On The NFP Number - "Little Underlying Improvement...Productivity Gains Have Diminished Sharply"

USA: Non-Farm Payroll Employment - March Shows Little Underlying Improvement But Other Data Firm

Actual: +162,000 mom
Previous: -14,000 mom
Consensus: +184,000
Released: Friday, April 02, 2010 at 08:30 (New York time)

March Shows Little Underlying Improvement But Other Data Firm
BOTTOM LINE: In a report with something for everyone, payrolls bounce 162,000 in March, due mainly if not entirely to census hiring and weather rebound. On the positive side, payroll data for prior months revised up, and survey of households shows third consecutive month of large job gains. On the negative side, measures of labor utilization - the official unemployment rate as well as the broader "U6" underemployment rate - remain high, and wages suffer a setback.

Nonfarm payrolls +162k in Mar vs. GS +200k, median forecast +184k.
Unemployment rate 9.7% in Mar vs. GS 9.6%, median forecast 9.7%.
Average hourly earnings -0.1% in Mar (mom, +1.8% yoy) vs. GS +0.1%, median forecast +0.2%.

1. The 162k increase in nonfarm payrolls reported for March looks like it is mainly due to the hiring of temporary workers for the census (+48k) and weather effects. While the latter can only be estimated, our +100k figure looks right if not a bit low based on three observations: (a) an increase in construction payrolls (+15k vs declines of 60k in Jan and 59k in Feb), (b) a full recovery from Feb setbacks in workweeks, and (c) a sharp swing down in the number of people reporting themselves as out of work due to weather (to 135k in Mar from 1.03 million in Feb, which statistically would be consistent with a weather effect of more than 100k).

2. Two other aspects of this report are firmer. First, payroll figures for Jan and Feb were revised up, by a cumulative 62k. Second, the survey of households reported a third consecutive large increase in employment, of 264k (cumulative increase now 1.1 million). It is not unusual for the household survey to show firmer recovery in the early stages of an economic recovery as net business formation picks up more rapidly than the payroll figures may anticipate.

3. Despite the firmer tone of the household survey, the unemployment rate remained at 9.7%, as labor force participation edged up for a second consecutive month. In fact, on an unrounded basis the unemployment rate came just short of rising 0.1 (9.749%). Meanwhile, the broadest "U6" measure of underemployment edged up 0.1 point, to 16.9%, underscoring the fact that there is still quite a bit of unused capacity in the labor market, both in terms of people who are working part time because they cannot find full-time work and in those who have not reentered the labor force. Consistent with this, average hourly earnings continue to weaken, slipping 0.1% on the month and dragging the year-to-year trend down to 1.8% (despite a small upward revision to the prior month).

4. With the recovery of workweeks in March, the index of total hours worked rose 0.4%. For the quarter as a whole, hours worked were up 2.1% at an annual rate. With the "bean count" for real GDP still fairly consistent with our estimate of a 2.5% annualized increase, the implication is that productivity gains have diminished sharply.


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