Down here in D.C., all across the financial markets, and in newsrooms, if not living rooms, across the country, the big topic on the first Friday of the month is the jobs report. This morning, the Bureau of Labor Statistics released the data on last month’s employment growth and unemployment rate.
The news was disappointing.
After increasing at a decent clip over the past few months, job growth slowed in March to 120,000. The unemployment rate ticked down a bit, from 8.3% to 8.2%, but not because more people were working. It fell because people left the job market (you’re only counted as unemployed if you’re looking for work—if you give up, you’re not counted).
So, not an uplifting report, for sure. But does this mean the economy is slipping back toward recession, or that recent momentum was illusory? Is it Lucy-with-the-football time again?
The answer is unknowable without more data. One month does not a trend make, and in fact, given that these numbers bounce around, the last thing you want to do is over-interpret one month’s result, whether the surprise is upside or downside.
In fact, one useful way to get around this problem of monthly noise is to average the results over a few months. To see how this helps, look at the figure above, which shows monthly job changes (in thousands) since last July. As you see there’s a big deceleration from Dec-Feb’s 200,000+ to March’s paltry 120K.
But since we now have all the data we need for the first quarter of the year, we can look at average monthly job changes on a quarterly basis, smoothing out some of the noise in the monthly data. The chart below does so, and there you see a clear acceleration in job growth, from around 130K/month a few quarters ago to about 230K now.
What, specifically, are we smoothing out with the quarterly data? In part, the monthly jobs numbers are being distorted by changing seasonal patterns. We just came through the fourth warmest winter on record (which is likely a symptom of another problem, one a lot more serious than faulty seasonal adjustments). That appears to have led some employers to staff up more in January and February than usual, and to then add fewer workers in March. But when you average over the quarter, that shifting around no longer distorts the results.
So here’s the punchline: Employment growth has picked up in recent months, and while it slowed in March, the underlying trend is still a lot better than it was a few months back. We’d all like to see faster job growth, for sure; there’s still around 20 million un- and underemployed folks out there. And with that much slack in the job market, there’s little upward pressure on the pace of wage growth, which has slipped below inflation in recent months, meaning paychecks aren’t going as far as they should.
But we’re moving in the right direction. The trend is our friend … for now. Whether she’s a good friend or a fickle friend is yet to be seen.