Those readers lucky or smart enough to read the WSJ’s Greg Ip were not caught unaware. Ip, the Journal reporter reputed to have most excellent contacts at the Fed, is a level headed sort who drills down beneath the headline numbers.
The March Employment Situation report was an upside surprise; Many observers had assumed that single data point as the start of an ongoing trend. Of course, it takes at least two points (preferably three) to create a trend.
After the sizzling Jobs number was released, Ip noted that the brisk pace of hiring was unlikely to continue:
The widely welcomed Labor Department report that employers outside of the agriculture sector added 308,000 jobs last month is a sign that hiring is catching up with recent growth in the economy. But it reflected some one-time factors, and elements of the report — drops in the length of the average U.S. workweek and in employment of temporary workers — suggest little pent-up demand for labor.
Additionally, the labor market is still adapting to the rapid gains in output per worker (productivity) and the fading stimulus of tax cuts and low rates. That, “plus the still-significant pool of unemployed workers, signal persistent downward pressure on wages and insecurity among workers.”
What’s significant about
The March numbers were swollen by a 71,000 increase in construction payrolls after declining in February due to bad weather; grocery-store payrolls rose by 13,000 as a strike in California ended. Neither gain is likely to be repeated. Furthermore, the average workweek fell to 33.7 hours in March from 33.8 hours in February and temporary employment edged down by 1,800 jobs. Neither number is a hopeful sign. Employers typically raise existing employees’ hours and hire temporary staff before adding to permanent payrolls. In one sign of continued labor-market weakness, the government said the number of people unemployed for 27 or more weeks rose to two million from 1.9 million.
Many of the jobs that have been created have been low-paying. Leisure and hospitality, where employment has risen 285,000 in the last two years, pays $8.88 an hour on average. Manufacturing, where employment was unchanged in March after 43 straight months of decline, pays $16 an hour.
Even job growth of 200,000 a month in percentage terms is less than the economy enjoyed through most of the 1990s. Companies have met increased sales by increasing output per employee, and that has boosted profits instead of wages. For that reason, among others, the central bank isn’t as worried about an uptick in inflation as it usually is when the economy rebounds. Even if wages start to accelerate, companies can absorb some of that in profit margins before raising prices.
Employers are likely to add only 150,000 to 175,000 a month in the next few months, said Lee Price, research director at the Economic Policy Institute, a liberal think tank. It is an estimate many economists share. That will draw more people into the work force looking for a job, but not enough to compel employers to pay more, he said. “People looking for a job will say it doesn’t look as bad as it used to, [but] people with a job will notice they don’t have much leverage” on compensation.
Since job growth has merely caught up to brisk economic growth, any slowing in the economy could quickly knock job gains back to an anemic pace of 100,000 a month. “We seem to have lost a little bit of the momentum that we had at the end of last year,” said Chris Varvares of Macroeconomic Advisers, a forecaster in St. Louis. The advisory firm recently trimmed its first-quarter growth projection to an annual rate of 4% from 4.4%.
Even after the Labor Department’s upward revisions to job growth in January and February — now put at a combined total of 205,000 instead of the previous 118,000 — job growth has averaged just 108,000 since August, half the pace of a normally growing economy.
March Hiring Hit 4-Year High, But Pace Is Expected to Ebb
GREG IP and MICHAEL SCHROEDER
WALL STREET JOURNAL, April 4, 2004 11:09 p.m.; Page A2