Nonfarm payrolls rose 162,000 in March.

Private-sector payrolls increased 123,000.

The unemployment rate held steady at 9.7%.

Specifics on the payroll report are below the jump.

Market Activity for April 1, 2010

March Jobs Report

The Labor Department reported that payrolls rose 162,000 in March, which is the largest increase since March 2007, and more importantly 123,000 occurred within the private sector – the federal government added 48,000, and one assumes most of these were 2010 census hirings.  Economists had estimated payrolls to rise 184K, but that was on the expectation of greater census hiring; the private-sector increase was better than expected. 

It’s interesting to note, total government hiring rose only 39,000 even though federal payrolls were up 48,000.  This means states and localities shed workers again and the trend will continue as their finances are in a world of hurt.

For the private sector, goods-producing industries added 41,000 payrolls last month.  Construction added 15,000 after cutting 59K in February – the three-month average is

-35K/month, so nice improvement in March.  Manufacturing added 17,000, which I think is a disappointment considering the recent pace of factory activity – in line with the recent trend as the three-month average is +15K/month.  (Productivity rates within the sector are such that we are unlikely to see the degree of factory job growth needed to replace a meaningful percentage of the 1.9 million manufacturing positions lost over the previous two years.  What we need to do is dramatically increase our domestic energy production.   If we were to remove the economically damaging restrictions on production, it would lead to a large scale increase in high-paying manufacturing employment over the next few years.) 

In terms of service-providing industries, 82,000 positions were added. This is up from the +55K in February and the three-month average of +61K/month.  Trade and transportation added 31,000 positions, up from 3K in February and the 16K for the three-month average; the financial sector shed 21,000, worse than the -15K in February and about in line with the three-month average of -19K; business services employment rose 11,000, down from +40K in February – the three-month average is +25K/month; education and health services continued to show gains (the only segment that never recorded job losses), up 45,000, better than the three-month average of +31K/month; leisure and hospitality added 22,000 positions after +16K in February – the three-month average is +17K.

Temporary employment was strong again, up 40,000 last month.  This marks the sixth month of increase as the segment has added 313,000 jobs since October.  This segment is watched because it normally predicts more permanent job growth to come.  Well, we certainly saw a nice rise in private-sector employment in March, but one does wonder if some of this temp. work is due to employers’ unwillingness to take on health-care benefits.  We’ll just have to wait and see if this rise in temporary employment funnels into a sustained increase in permanent work, or those more lasting hires are being supplanted by temps.

So, we need roughly 125,000 jobs a month to hold the unemployment rate steady and in this sense this was a good report.  We’ve been predicting that job growth would begin in February/March and it appears to be occurring.  The unemployment rate held steady at 9.7%.

The problems within the report are the long-term jobless rate and the underemployment figures. 

Underemployment, as measured by the U6 unemployment rate (this captures people who are marginally attached to the workforce, meaning they didn’t look for work during the past four weeks, and those working part-time because they can’t find full-time work – for this report the uptick was due to the latter) ticked up to 16.9% from 16.8% in February. 

The long-term unemployed, those out of work for at least 27 weeks, jumped to a new high of 44.1% from 40.9% in February.  The absolute number of those out of work for this duration rose 414,000 to 6.5 million.  This is a major problem and is at least partially due to the French-like extensions to jobless benefits, that now extend to as long as two years.  It is certainly easier to keep collecting benefits rather than taking a less-than-desirable job (or jobs, as in multiple positions), but these people are just harming themselves as they’ll find it more difficult to get hired the longer they’re out of work. 

This will also lead to a higher unemployment rate over the next year, in my view.  Just as more people have delayed looking for work due to continual jobless benefit extensions, when they eventually run out that means the influx of workers returning to the workforce will be that much greater.  If job growth isn’t robust, then the number of people re-entering the job market will outpace hirings.  That means a higher jobless rate, higher than I think most currently expect.  The 100-150K/month in census employment will mask this issue over the next few months, but by year end those census employees will be looking for work again. 

Average hourly earnings slipped 0.1% to $22.47/hour, up 1.8% over the past year.  Average hours worked rose 0.3% to 34.0; this is good to see and a result of the boost in factory activity. 

Today’s Data and Pre-Market Trading

So we wait for this morning’s releases of the ISM Non-Manufacturing survey and pending home sales for February (which is a good indicator of March and April existing home sales).  Stock-index futures are up strong as international bourses responded well to the U.S. jobs report.  We’ll make another run for Dow 11K, an attempt that has been rejected three times over the past six sessions.

Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900