Nonfarm payrolls increased by 196,000 in March, slightly above consensus estimates and close to the average of 203,000 per month over the last eight years. The key takeaway from the March data is that the weak job growth in February looks like a one-off event, and we expect job growth to remain strong.
Looking past the payroll number, other data in the report was mixed. The unemployment rate was unchanged at 3.8% and the U-6 underemployment rate also remained steady at 7.3%, its post-crisis low. Average hourly earnings rose just 0.1% month-over-month, compared to the consensus estimate of 0.3%. We still expect wage growth to rise over time, but it doesn't appear that this will create worrying inflationary pressure. Under these circumstances, the Fed is likely to remain "patient," finishing up its balance sheet adjustment but otherwise leaving policy unchanged.
One of the important questions for the economic outlook is how long can we maintain job growth near 200,000 per month? With unemployment already at historically low levels, sustaining this pace will require a higher labor force participation rate. The participation rate slipped 0.2 percentage points in March, but we see some reason for optimism. More people have been staying in the labor force after reaching the age of 65, and that trend should continue as long as there is strong labor demand. Participation rates among women have reached new highs, and could rise further given that education levels among women are higher than ever, birth rates have fallen in recent years, and US participation rates for women are still lower than in many other advanced economies.
Job growth rebounded in March
Nonfarm payrolls and average hourly earnings (y/y in %)
Brian Rose, Senior Economist Americas, UBS Financial Services Inc. (UBS FS)